Last month, in two decisions, the U.S. Supreme Court overturned long-standing doctrines governing federal enforcement of laws that protect the environment, public health, consumers, workers, investors, and financial stability. The decisions (Roper Bright Enterprises v. Raimondo and Corner Post v. Federal Reserve System) are important milestones in the decades-long campaign by fossil fuel companies and their allies to dismantle the so-called “administrative state.” These decisions, ostensibly “pro-business,” actually make business prospects uncertain and throw sand in the gears of innovative capitalism. Business leaders and investors must now recognize that core elements of our nation’s legal framework and institutions are in serious jeopardy. To unlock the enormous economic opportunities from the transition to a decarbonized economy and minimize the financial risks that will result if the transition fails, we must act to protect them.
The Supreme Court’s recent decision must be seen in the context of the broader demolition movement. … [+]
Dismantling
This “dismantling” campaign (my term) has been well documented by Jane Mayer in her book Dark Money and many others. Its leaders claim they are acting in the national interest to protect free enterprise. But the Supreme Court’s most recent decision shows why this campaign is not necessarily conservative.
Regulation is essential to ensure that businesses can compete on a level playing field and protect the environmental services and financial stability on which our economy depends. Business regulation has made the United States the most attractive capital market in the world. Stopping the dismantling is key to preserving this business-friendly environment.
Roper Bright: Lowering the Bar for Overturning Government Decisions
In Loper Bright, the Supreme Court abandoned chevron deference, a 40-year-old principle of judicial restraint that requires courts to defer to reasonable agency interpretations when resolving statutory ambiguities. In a 6-3 decision, the Court revived a challenge to an agency rule requiring fleet owners to pay for third-party observers to prevent overfishing. The challenge will now be heard, even though the vessel observations will cease in 2023 and the government reimbursed fleet owners for the observers’ costs while the program was in place.
Bleached coral in the Pacific Ocean. By weakening regulations on overfishing, the Lopar Bright … [+]
Justice Loper Bright makes clear what the Supreme Court has been suggesting in recent decisions: that it is not the experts in federal agencies that have long been tasked with deciding the myriad complex technical questions that Congress leaves unanswered when it enacts laws, but lifelong judges who are not accountable to voters who are in the forefront of deciding those questions.
The pernicious consequences of this hostility to agency expertise were evident in another case this term, Ohio v. Environmental Protection Agency, where Justice Gorsuch conflated nitrogen oxides (a pollutant) with nitrous oxide (laughing gas) while discussing the court’s controversial stay of air pollution regulations. By blithely rejecting EPA’s analysis, the Court’s 5-4 majority decision dooms us to more pollution and sends a message to agencies that virtually every aspect of their voluminous decision documents can be questioned by unqualified judges.
An oil and chemical refinery in an area of Louisiana known as Cancer Alley. … [+]
Under Roper-Bright, government experts are no longer entitled to deference from the courts. This means that regulatees are more likely to win in cases brought before judges who tend to be skeptical of government action. Cases brought before judges who are more favorable to stricter rules are more likely to overturn the rules favored by regulatees. The distribution of outcomes is unknown. What we know: Roper-Bright’s abandonment of judicial restraint means that companies will have to deal with very difficult regulatory uncertainty.
Corner Post: Opening the door to a flood of lawsuits
Cornerpost v. Federal Reserve System reinterprets the federal six-year statute of limitations, which has long been understood to mean that an agency decision can be facially challenged within six years of the decision. The Supreme Court’s new approach, adopted by the same supermajority decision in Roper Bright, allows lawsuits to be filed to overturn a decision within six years of when a regulated business was first affected.
As a result, a convenience store and truck stop called Corner Post, which it founded in 2018, will be able to challenge the Federal Reserve’s decision on financial institutions’ debit card fees that went into effect in 2011. The suit will proceed even though other companies and industry groups sued and lost a decade ago challenging the same Fed decision.
Corner posts open the door to litigation by those seeking to dismantle important U.S. legal institutions. … [+]
Corner posts would open the door to virtually limitless litigation. All it takes to sue under the Administrative Procedure Act against thousands of decisions made by the government over the past century is to create a new business affected by that decision. Armed with the Roper Bright “non-compliance” ruling, dismantling advocates are sure to be primed. The agency’s ability to perform the core functions assigned to it by Congress could soon be in jeopardy.
Preventing a new global financial crisis
Companies and investors must act against this growing threat, but they must be prepared for significant backlash. In recent years, dismantling advocates have launched a major advocacy campaign to undermine companies and investors who address environmental, social and governance risks. As reported by the Center for Media and Democracy, their arguments revolve around the assertion that climate change and other ESG risks are “political” and outside the scope of companies’ and investors’ financial stewardship mandates.
The financial stewardship obligations of companies and investors include protecting against harm. … [+]
This argument is wrong on many levels. Perhaps the most obvious is that preventing businesses and investors from negotiating with regulators on climate change and other systemic risks would invite a new global financial crisis. The Center for American Progress estimates that the 2008 global financial crisis, which cost the economy 7.6 million jobs between 2008 and 2009 and 9.5 percent of 2007 GDP per capita between 2008 and 2013, was directly caused by financial industry deregulation. Businesses and investors must now block even more massive deregulation and allow federal agencies to address climate change, pandemics, and the many other threats to sustainability and financial stability.
How businesses and investors can help
Many business leaders and investors may already recognize that the legal framework that has made our country strong is under threat, but they’re not sure how to counter it. Here are four suggestions:
First, businesses and investors need to communicate to Congress the importance of legislation that prevents regulated interests from unfairly undermining the operations of government agencies while preserving fundamental principles of judicial review. Bills offering a constructive approach have already been introduced by Rep. Nadler (D-NY) and Rep. Correa (D-Calif.).
Second, businesses and investors should commit to providing technical support to government agencies and defending them against litigation challenges when rational approaches are taken to complex statutory interpretation issues.
Third, we should join the vibrant debate about corporate regulation that is already taking place in the courts. While federal agencies defend their regulatory decisions, and civil society groups and states sometimes rally to the agencies’ defense, business and investor groups are often absent. Court decisions in the coming years will determine the extent of the damage caused by Roper Bright and Corner Post. Businesses and investors can play a central role in minimizing this damage by highlighting the need for sensible safeguards. As Harvard Law School scholar J.S. Nelson has shown, large companies have responded to the recent wave of unsettling legal cases by filing amicus briefs and intervening in litigation to support agency decisions, and this effort needs to expand significantly.
Finally, public company annual reports and shareholder meetings should include robust discussions of the company’s policy commitments on climate change and other systemic risks. Where management supports dismantling through their own advocacy and funding of trade and advocacy groups, or where they remain silent, investors should pressure management and board members to change.
New generation safeguards
Engaging in these policies will require persistence and creativity. Virtually no one is willing to defend the current set of regulations that regulate business activity in the United States. For example, it is very difficult to build affordable housing, public transportation, electric power lines, and other critical infrastructure. A new generation of safeguards and incentives is needed to transition to a decarbonized, climate-resilient economy that redresses longstanding racial and economic injustices. Fortunately, government agencies have already begun working in this direction, as the Inflation Control Act, the Bipartisan Infrastructure Act, and the Semiconductor and Science Act were signed into law by President Biden in 2021 and 2022. To build on this momentum, businesses and investors need to work with federal agencies and civil society to eliminate arbitrary administrative obstacles and ensure that important government agency decisions can safely pass through the courts.
