Who's on First [?][.]
Jamila Piracci
Founder, Roos Innovations
jpiracci@roosinnovations.com
On March 6 of this year, the Securities and Exchange Commission (“SEC”) adopted climate related disclosure rules (“Climate Rules”) after a long and bumpy ride that began in 2010 and remains mired in litigation to this day. Most recently in the litigation over the Climate Rules, the SEC submitted its court brief to defend the adoption of those rules. Not surprisingly, the SEC asserts in its brief that the Climate Rules fall within its mandate and rejects the petitioners’ argument that the Final Rules are about climate policy.
The path of this particular regulatory development winds through a landscape that has historically shifted from time to time, and we are in such a time. Specifically, the mandates of administrative bodies are under a microscope and the trend leans toward skepticism about administrative latitude when the situation is unclear.
For some time, the administrative bodies of the executive branch have stepped into activities that many have argued represent tasks relegated to elected or judicial branch officials. That tendency is on the ropes, though, and the judiciary has weighed in several times this year about specific situations involving the authority of administrative agencies. It is important to note that, other than the Loper Bright case [1], each example is fact-specific so cannot be taken on its own to signal a particular direction; however, taken together, these cases suggest that administrative agency actions might be questioned more going forward.
An April piece posted by the CCRO (“Now We’re Talking”) described the SEC’s Climate Rules and the litigation surrounding it. The central substantive argument of the petitioners in the litigation is that the rules would force registrants to report information that is suggested to be political rather than objective or factual; hence, the SEC’s recent brief arguing the other side.
In tandem with litigation over the Climate Rules, the Supreme Court was due to rule on whether the “Chevron deference” to administrative law proceedings should stand (referring to the 1984 Chevron case [2]). The Chevron deference subordinated a court’s interpretation to “a reasonable interpretation made by the administrative agency” in the absence of legislative specificity [3]. No longer. In late June, in the Loper Bright [4] case, the Supreme Court overturned that deference to administrative interpretation. The majority opinion said the Chevron decision had improperly transferred the power to interpret the law from the judiciary to federal agencies.
Other Supreme Court cases have had outcomes that are consistent with the general trend casting doubt on administrative power, though as noted above, in fact-specific contexts:
In the Jarkesy case [5], the Court decided that defendants facing SEC enforcement actions seeking civil penalties are entitled to have their cases heard by juries (rather than being forced in front of administrative law judges - i.e., SEC in-house arbiters). Importantly, the Court noted that allowing the executive branch to play “the roles of prosecutor, judge, and jury . . . is the very opposite of the separation of powers that the Constitution demands.”
In the Corner Post case [6], the Court decided that the six-year statute of limitations to facially challenge agency rules runs from the date a plaintiff suffers injury from the rule, rather than from the promulgation of the rule, effectively extending the time available for a plaintiff to make an evaluation and take action.
Finally, in the EPA case [7], the Court said that the Environmental Protection Agency lacks authority under the Clean Air Act to impose emissions gaps by shifting electricity production from higher-emitting to lower-emitting producers.
While these developments are welcome news to those who have questioned a state of affairs that seemed to grant expanding powers to administrative bodies and processes, they can also be seen as inserting an element of uncertainty to factors that risk officers in particular are concerned about managing.
What can risk officers do?
Accept the momentary discomfort of hearing a question and a statement simultaneously. Periods such as the current one, which is evaluating the authority policing market behavior, are valuable to clarify and strengthen the rule of law.
Reclaim comfort by using what is already in your hands - your skills as risk practitioners. Adjust existing risk measurement tools and tracking to accommodate a three-dimensional enterprise. (Coming soon from the CCRO - new opportunities for scenario analysis!)
Stretch yourself a little. This will be a familiar refrain to those reading CCRO posts often: Connect now and regularly with management, finance, regulatory and other teams as the regulatory landscape shifts amid similarly evolving commercial, community and financing drivers.
Roll up your sleeves and help with solutions powered by the CCRO and its working groups!
Footnotes:
Loper Bright Enterprises v. Raimondo, No. 22-451 (2024).
Chevron U.S.A. v. Natural Resources Defense Council, Inc., 468 U.S. 837 (1984).
“Chevron deference,” Cornell Law School, Legal Information Institute.
Loper Bright Enterprises v. Raimondo, No. 22-451 (2024).
SEC v. Jarkesy et al., No. 22-859 (2024).
Corner Post, Inc. v. Board of Governors of the Federal Reserve System, No. 22-1008 (2024).
West Virginia et al. v. Environmental Protection Agency et al., No. 20-1530 (2022).