Administrative Law Report - October 2024, Vol. 1

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:  

• D.C. Circuit Defers to EPA’s Factual Determinations: On Aug. 13, the US Court of Appeals for the DC Circuit, issued its decision in Huntsman Petrochemical LLC v. EPA, No. 23-1045 (D.C. Cir. Aug. 13, 2024) in which the DC Circuit illustrated how courts should continue to defer to Agency’s factual determinations. The case involved EPA’s evaluation of the cancer risk from exposure to ethylene oxide. EPA’s selected cancer risk value was, in turn, applied by EPA in developing revised emission standards for certain chemical manufacturing facilities. The Court examined EPA’s modeling and statistically analyses it used and determined that EPA had not departed from a rational course of action. The Court stated that when reviewing EPA’s evaluation of scientific date within its area of expertise, Courts of Appeals should accord extreme deference to the EPA when reviewing EPA’s regulation under the arbitrary and capricious standard. To be clear, this was not a case implicating the Loper Bright deference to agency’s statutory interpretation. Rather, it was a case about deference afforded an Agency’s factual determinations within its area of expertise. It remains uncertain as to how courts will evaluate agency’s decision involving mixed question of law and fact.
• EPA’s Designation of PFAS under CERCLA under Attack: Several industry groups petitioned the US Court of Appeals for the DC Circuit seeking review of EPA’s designation PFOA and PFOS (both part of the family of chemicals referred to as PFAS) as hazardous substances under the Comprehensive Environmental Response Compensation and Liability Act (commonly referred to as “Superfund”). Non-Binding Statement of Issues, Chamber of Commerce of the USA, et al, v. U.S. EPA, et al., No. 24-1193, Doc. No. 2064411, (D.C. Cir. Jul 12, 2024). EPA’s rule is the first time since CERCLA was enacted in late 1980 that EPA has designated a hazardous substance under its CERCLA authority. Petitioners are challenging the rule under the arbitrary or capricious standard as well as asserting that EPA erroneously interpreted the Superfund statute in determining whether a substance may present a substantial danger to public health or welfare or the environment.  It will be interesting to see how the DC Circuit applies the pre-Chevron deference standard under Skidmore cited by the Loper Bright decision on the deference or “respect” afforded an agency’s statutory interpretations.

Financial Services/Securities:

• The Seventh Circuit Holds that ECOA Protects Prospective Applicants after Applying Loper Bright: In CFPB Townstone Financial, Inc., the Seventh Circuit reversed a district court ruling and revived the CFPB’s claim under the Equal Credit Opportunity Act (ECOA). The CFPB alleged that Townstone Financial discouraged Black prospective applicants from applying for mortgages through discriminatory comments made on its podcast. The Court held that ECOA’s protections extend to prospective applicants and that discouraging them from applying is a violation of the law. The Court noted that the case was litigated prior to the Loper Bright but the Court approached the case as presenting a question of statutory interpretation subject to de novo review. The case was remanded for further proceedings, particularly regarding First Amendment concerns.
• Trade Groups File Amicus Brief Supporting Auto Lender in CFPB UDAAP Case: The CFPB and the New York Attorney General filed a lawsuit against Credit Acceptance Corporation, a subprime auto lender, in Jan. 2023, alleging violations of Unfair, Deceptive, or Abusive Acts or Practices (UDAAP). The case was paused due to the CFSA v. CFPB case but was re-opened in June. The auto lender moved to dismiss the suit, and industry trade groups have filed an amicus brief, invoking the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo to challenge regulatory authority under UDAAP.
• Comment Letter Filed on Behalf of Mortgage Servicers that Proposed CFPB Rule Making on Mortgage Servicing is an Over-Reach: A comment letter submitted on behalf of mortgage servicers criticized the CFPB’s proposed rulemaking on mortgage servicing, claiming that it constitutes regulatory overreach. The letter argues that the rules would place undue burdens on servicers, potentially harming the industry and consumers alike. By invoking Loper Bright Enterprises v. Raimondo, the comment highlights concerns about the agency’s expansive interpretation of its authority under UDAAP and urges reconsideration of the proposal.

Labor:

• Non-Compete Ban Struck Down: In Ryan, LLC v. FTC, the FTC via 3-2 vote issued a Rule (set to take effect September 4, 2024) purporting to ban most non-competes across the land – preventing employers from entering into them for most employees or independent contractors, invalidating existing non-competes, and requiring employers to give notice to those who had them.  The Court in Ryan, relying upon Loper Bright, among other authorities, determined the FTC exceeded its authority in issuing the Rule, finding the FTC lacked authority to create substantive rules precluding unfair competition; and found that the Rule was arbitrary and capricious.  The Court held the Rule unlawful and set it aside.  The Court granted summary judgment to Ryan and the Plaintiff-Intervenors, set aside the Rule with “nationwide effect,” and citing 16 C.F.R. § 910.1–.6.14, the Court concluded the “Rule shall not be enforced or otherwise take effect on its effective date of September 4, 2024, or thereafter.” The FTC has until Oct. 19, to appeal but faces an uphill climb if it were to do so.

Transportation:

• Scope of NEPA: In a case coming this term to the United States Supreme Court from the U.S. Surface Transportation Board (STB), the Supreme Court will consider whether the National Environmental Policy Act (NEPA) requires an agency to study environmental impacts beyond the proximate effects of the action over which the agency has regulatory authority. The STB is an independent federal agency with authority to grant permission for an entity to construct a new common carrier line of railroad. In this capacity, the STB after conducting a NEPA review, approved the construction of a rail line that would haul, as its primary commodity, oil. Seven County Infrastructure Coalition – Rail Construction & Operation Exemption – In Utah, Carbon, Duchesne, and Uintah Counties, Utah, STB Finance Docket No. 36284 (served Dec. 15, 2021). Opponents to the proposed rail line argued that the STB failed to sufficiently analyze the upstream and downstream consequences that the proposed rail line would have on emissions. Eagle County, Colorado v. Surface Transportation Board et al., 82 F.4th 1152 (D.C. Cir. 2023). The STB argued that under Department of Transp. v. Public Citizen, 541 U.S. 752 (2004), it was not required to identify and describe the environmental effects of increased oil drilling and refining because it lacked authority to prevent, control, or mitigate those developments. The DC Circuit Court of Appeals rejected the STB’s environmental analysis arguing that it did not meet the NEPA standard for taking a “hard look” and partially vacated the STB’s decision as arbitrary and capricious. Parties are presently briefing the Supreme Court and are waiting for oral argument to be scheduled.
• Crew Size Litigation: Railroads are challenging a Federal Railroad Administration (FRA) rule requiring the industry to operate with a minimum of two crew members for railroad operations. Railroads are arguing that the train crew size requirement is not supported by evidence that two-person crews are safer. Further, the railroads argue that governments around the world are utilizing technology to encourage more efficient transportation services, but FRA is “locking the American rail industry into the past.” FRA responded on September 24, 2024, that it reasonably exercised its discretion, and its train crew size promotes safety. The FRA rule is Train Crew Size Safety Requirements, 89 Fed. Reg. 25052. The cases challenging the rule are consolidated under, the lead docket, Florida East Coast Railway LLC v. Federal Railroad Administration, Et al., 24-11076 in the 11th Circuit Court of Appeals.

Overall Agency Regulations:

• Loper Bright Changes the Paycheck Protection Program Forgiveness Landscape: Shortly after the Congress passed the CARES Act and established the Paycheck Protection Program to address the COVID-19 pandemic, many small businesses began applying for and receiving purportedly forgivable loans. Following the funding of millions of dollars in loans, the Small Business Administration (SBA) published an interim final rule (“IFR”) purportedly “clarifying” PPP loan eligibility standards. Based on the IFR, the SBA denied forgiveness to borrowers who the SBA claimed were not eligible to receive loans in the first place. Prior to the Supreme Court’s Loper Bright decision, courts deferred to the IFR’s interpretation of allegedly ambiguous language in the CARES Act in upholding the SBA’s forgiveness denial decisions. Following the Loper Bright decision, courts are beginning to take a different view and the SBA has had to re-think its legal strategies. In Carolina Finance v. SBA, a forgiveness appeal in the US District Court for the Middle District of North Carolina, the SBA withdrew its Chevron deference argument, now claiming the CARES Act was unambiguous as to loan eligibility. Thereafter, the court terminated the pending motions for summary judgment, directing the parties to refile in light of Loper Bright. The SBA has similarly had to address Loper Bright in other PPP forgiveness cases on appeal in the 5^th Circuit. It is likely many borrowers who have been denied forgiveness on their PPP loans may now find relief.

Other:

• Potential Impact of Loper Bright on International Trade Disputes: The Supreme Court’s ruling in Loper Bright Enterprises v. Raimondo (2024) shifts the responsibility of interpreting ambiguous laws from federal agencies to the courts, marking a departure from the long-standing Chevron deference, which previously favored agency interpretations. In the context of international trade, this change affects cases heard by specialized courts like the Court of International Trade (CIT) and the Court of Appeals for the Federal Circuit (CAFC), which deal with decisions from agencies such as the International Trade Commission (ITC), Department of Commerce (DOC), and others. The ruling could streamline the appeals process by reducing remands to agencies, potentially accelerating resolution in trade disputes. However, issues related to foreign policy or national security, such as Section 301 and Section 232 tariffs, may remain less affected due to their political nature and the Executive Branch’s authority in these areas.
• Sixth Circuit Judge Flags Seventh Amendment Concern Post SEC v. Jarkesy: In his concurring opinion in Profitt v. Highlands Hosp. Corp., Circuit Judge Thapar cautioned that the Federally Supported Health Centers Assistance Act (FSHCAA) and the Federal Tort Claims Act (FTCA) “pose grave Seventh Amendment issues” in light of Jarkesy’s reminder that when it comes to the Seventh Amendment, “what matters is the substance of the suit, not where it is brought, who brings it, or how it is labeled.” Judge Thapar noted that, the fact that these statutes preclude jury trials squares with the Seventh Amendment because of sovereign immunity – e., a plaintiff has no right to sue the government, so a plaintiff has no right to a jury trial when the government consents to being sued. But when, as in Profitt, no government actor was involved, and the U.S. government substitutes itself as the defendant under FSHCAA and FTCA, the plaintiff arguably is being denied the right to a jury trial that she otherwise had. Because the plaintiffs in Profitt did not raise this issue, the Sixth Circuit did not resolve it. But Profitt stands as a cautionary tale for future similarly situated not to overlook a possible Jarkesy issue.
• Fifth Circuit Holds that Vacating District Court Decision for Case Decided on Chevron Deference, and Remanding for the Consideration of the Merits, is Proper Result: In Utah v. Su, the Fifth Circuit rejected the parties’ arguments to decide the merits of a case which, in the district court, sided with the Department of Labor’s interpretation of final rule based on Chevron deference. Instead, the Fifth Circuit looked to its normal (although not absolute) practice of when intervening Supreme Court precedent affects a case pending on direct appeal and held that the proper result is to vacate the judgment below and remand for reconsideration in light of the new decision – in this case, in light of Loper Bright Enterprises. The Fifth Circuit noted that such a practice teems the practice of other circuits as well. Thus, for those cases which turned on Chevron deference in the district court and were pending on appeal when the Supreme Court nullified such deference, the likely result from the federal circuit courts of appeal will be to vacate the district court’s decision and to remand for the district court to consider the merits of the case under Loper Bright. This practice will allow for a body of jurisprudence to develop in the district courts applying Loper Bright’s pronouncements to the facts of individual cases, which the circuit courts can review on appeal.

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