Administrative Law Report - November 2024, Vol. 2

Welcome to your monthly rundown of all things administrative law, where we highlight all the happenings you may have missed.

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Environmental/Energy:  

• FERC Terminates Pending Enforcement Case’s ALJ Hearing Procedures Based on Jarkesy: On September 19, 2024, the Federal Energy Regulatory Commission (FERC) issued an order in Total Gas & Power North America Inc. terminating the use of the Administrative Law Judge (ALJ) hearing procedures that FERC had been using in this matter involving alleged natural gas price manipulation. FERC did so based upon the U.S. Supreme Court’s Jarkesy decision earlier this year, which held that SEC enforcement-action civil penalty respondents are entitled under the 7th Amendment to a jury trial for claims that are “legal in nature” and similar to common law fraud. FERC announced it would issue a future order, subject to the interaction with the Texas federal court which stayed the FERC proceeding pending the outcome in Jarkesy. Until such Order is issued it is unclear what future action FERC might take in the pending enforcement case. It is also unclear how Jarkesy will affect other pending and future FERC enforcement actions under not only the Natural Gas Act, but also under other statutes which FERC implements, like the Federal Power Act. 
• Supreme Court Remands Wetland Decision Based on Loper Bright: In a one-page Order, the U.S. Supreme Court granted certiorari, vacated, and remanded the matter back to the 8th Circuit Court of Appeals “for consideration in light of the Loper Bright” decision. The case involves a South Dakota farmer (Arlen Foster) who has had a running battle with the United States Department of Agriculture (USDA) about whether a 0.8-acre area on his farm is considered a wetland. In 2011, the Natural Resources Conservation Service (NRCS) designated the area as a wetland that it is protected by federal law. Mr. Foster appealed this designation. Under the “Swampbuster” provisions of the 1985 Food Security Act landowners can request that the USDA review wetland certifications at any time. Mr. Foster sought review several times to change the designation, but all were all denied. Foster’s appeals of USDA denials wound up in the 8th Circuit Court of Appeals which upheld the lower court’s decision that deferred to the “expertise of the agency”. Foster then appealed to the Supreme Court who remanded the case back to the 8th Circuit.

Financial Services/Securities:  

• Financial Technology Association Sues CFPB Over New “Buy Now, Pay Later” Regulations: The Financial Technology Association (FTA) filed a lawsuit against the Consumer Financial Protection Bureau (CFPB) challenging a new rule that extends protections similar to those under the Truth in Lending Act (TILA) for credit cards to “buy now, pay later” (BNPL) products. The rule requires BNPL providers to issue periodic billing statements, manage dispute investigations, and offer refunds for cancellations, akin to credit card protections. The FTA argues that this approach fails to recognize key differences between BNPL and credit cards—BNPL transactions are typically interest-free, closed-end loans with short repayment cycles, unlike revolving credit card debt. According to the FTA, the CFPB overstepped its statutory authority by issuing this rule without proper notice-and-comment procedures as required under the Administrative Procedure Act.

Labor:

• Court Upends ALJ Authority for OFCCP Based on Jarkesy: In ABM Industry Groups, LLC v. DOL, a Texas federal district court ruled that the Department of Labor’s (DOL) use of Administrative Law Judges (ALJs) in an enforcement action against federal contractor ABM violated constitutional protections, citing the Supreme Court’s SEC v. Jarkesy ABM had challenged the DOL’s Office of Federal Contract Compliance Programs (OFCCP) for exceeding its authority in an antidiscrimination case, arguing the ALJ’s “two layers” of removal protections were unconstitutional. The court halted the proceeding, potentially prompting other employers to challenge similar ALJ-based enforcement. This decision may lead agencies like the OFCCP to alter enforcement strategies, possibly moving cases to court, while Congress could consider reforms. An appeal may be forthcoming, depending on agency leadership changes post-election.

 Transportation:  

• NEPA Update: Supreme Court Schedules Argument in Eagle County Case: In last month’s Administrative Law Report, we summarized a National Environmental Policy Act (NEPA) railroad construction case currently before the U.S. Supreme Court.  Petitioners are seeking to overturn a D.C. Circuit Court of Appeals decision in Eagle County, Colorado v. Surface Transportation Board et al., 82 F.4th 1152 (D.C. Cir. 2023).  Since our last report, SCOTUS has scheduled oral arguments on this case to be December 10, 2024.
• Court Stays California Air Resources Board Locomotive Emission Standards: In April 2023, the California Air Resources Board (CARB) established a set of emissions standards for locomotives operating in California. The Association of American Railroads (AAR) and the American Short Line and Regional Railroad Association (ASLRRA) filed a motion for summary judgment arguing that the Interstate Commerce Commission Termination Act preempts the CARB rule. The U.S. District Court for the Eastern District of California denied the motion for summary judgment and issued a stay, pending a decision from the U.S. Environmental Protection Agency (EPA) as to whether the CARB rule is first consistent with the Clean Air Act. Ass’n of Am. Railroads v. Randolph, No. 2:23-CV-01154-DJC-JDP, 2024 WL 4347408 (E.D. Cal. Sept. 30, 2024). If EPA approves the CARB rule, it is likely that AAR and ASLRRA will again challenge the CARB rule because locomotives cross state lines, and this CARB rule has the potential to impact locomotives operated in other states.
• Court Rules DOT’s Disadvantage Business Enterprise Program is Unconstitutional: The U.S. District Court for the Eastern District of Kentucky in Mid-America Milling Company, LLC et al. v. United States Department of Transportation ruled that the Department of Transportation’s Disadvantaged Business Enterprise (DBE) Program is unconstitutional. The DBE Program, aimed at increasing participation of minority-owned businesses in federally funded transportation projects received by certain State DOTs, uses a rebuttable presumption of social and economic disadvantage based on group membership, including race and gender. The Court found this presumption violates the Fifth Amendment’s Due Process Clause, as it prevents businesses owned by individuals outside these groups from unfairly competing for contracts. This decision aligns with recent rulings against other federal programs with similar preferential policies. The Court’s injunction currently applies to states in which the plaintiffs operate or bid on contracts.  However, this injunction signals potential wider implications for the DBE Program and other initiatives relying on race or gender-based presumptions. Government agencies and legislatures are likely to explore alternative approaches to address concerns about equitable access and competition to federally funded projects.

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