Major Decision for Major Questions: Supreme Court Reins In Federal Regulatory Authority

Key Takeaways

• Before the end of its Term, the Supreme Court invalidated the Environmental Protection Agency’s Clean Power Plan, concluding that the EPA had wielded “unheralded power” to enact a novel and sweeping regulatory scheme beyond what Congress contemplated or authorized.
• The Court’s decision represents the first comprehensive articulation of the “major questions” doctrine, which requires clear Congressional authorization for an agency to regulate matters of great economic or political significance.
• The impact of the Court’s decision goes well beyond the EPA and applies to all federal agencies.
• Future challengers of agency actions now have another powerful tool at their disposal to argue against administrative actions; they can argue that a particular agency has over-extended its authority to a matter of vast economic and political significance based on a broad or vague statutory provision.
• We expect an uptick in litigation challenging broad and questionable agency action in a variety of areas, such as cryptocurrencies and other blockchain products, capital market regulations, FTC oversight, and antitrust and competition law. Such litigation will put agencies to the test when regulators seek to govern outside their traditional areas of competence, expand agency reach into new sectors of the economy, or try to alter traditional understandings of agency authorizations.

Introduction

In West Virginia v. EPA, the Supreme Court confirmed a robust “major questions” canon of construction that will restrain administrative agencies’ ability to regulate on issues of “vast economic and political significance” on June 30, 2022.¹ Although the decision invalidated the Environmental Protection Agency’s (“EPA”) proposed carbon-dioxide-emissions regulations, its impact will cut across all executive branch agencies. In particular, the Court held that, when addressing a “major question,” an administrative agency must identify a clear legislative statement that Congress granted the agency authority to tackle that question. Not only does the Court’s ruling add another arrow to the quiver of those seeking to challenge regulatory actions, it also enforces an obligation on Congress to legislate using clear language when it wishes to delegate significant power to administrative agencies.

Background

This case stemmed from a regulation known as the Clean Power Plan, which the EPA originally promulgated in 2015 under Section 111(d) of the Clean Air Act. The rule required existing coal-fired power plants to either reduce the amount of electricity they generated or subsidize energy generation by natural gas or renewable sources. Coal-fired plants could comply with this mandate either by reducing their production of energy; constructing or investing in a new gas plant, wind farm, or solar field; or by acquiring credits from other producers as part of a cap-and-trade program.

On the same day that the EPA promulgated this rule, 27 states and dozens of other parties challenged the Clean Power Plan in the D.C. Circuit, which declined to stay the rule. The Supreme Court granted the stay, preventing the rule from ever taking effect.² After the D.C. Circuit heard arguments but before its decision, the Trump Administration repealed the Clean Power Plan on the ground that the EPA lacked the proper statutory authority to issue the rule.

EPA’s repeal was then challenged by a host of other states and private parties at the D.C. Circuit. The Court of Appeals held that the Clean Air Act could reasonably be read to authorize the Clean Power Plan, and thus it invalidated the Trump Administration’s repeal of the Clean Power Plan (which had the effect of reinstating the rule).³ West Virginia and the regulated parties on the other side appealed to the Supreme Court, and the Court reversed in a 6-3 decision, holding that “major questions” doctrine required clear congressional authorization for the Clean Power Plan’s sweeping regulation of the energy industry and that the EPA lacked such authorization in this case.

The ”Major Questions” Doctrine

The Court’s decision in West Virginia is the first comprehensive articulation of the “major questions” doctrine, although the principles underlying the doctrine are longstanding. For the first time, the Chief Justice’s opinion for the Court expressly recognized the major questions doctrine by name.⁴ However, the Chief Justice identified a long string of Supreme Court precedents that had repeatedly applied the core principles of the doctrine to strike down significant regulations. Those decisions included recent pandemic-era cases, involving the claimed authority by the Center for Disease Control to adopt an eviction moratorium and by the Occupational Safety and Health Administration to adopt an employer vaccine mandate, as well as earlier cases involving the FDA’s claimed authority to regulate cigarettes.⁵

The Court described the “major questions” canon as consisting of two steps. First, the court considers whether an agency has sought to exercise sweeping authority over a matter of “vast economic and political significance.”⁶ Second, in such an “extraordinary case,” the agency must identify “clear congressional authorization” for such claimed power.⁷ If the agency cannot point to any clear statement supporting its authority, then the regulatory action is contrary to law and must instead be adopted through duly enacted legislation.

In a concurring opinion joined by Justice Alito, Justice Gorsuch articulated factors that should influence a court’s analysis of both steps. For the first step, Justice Gorsuch explained that a court may consider the claimed authority “extraordinary” where the agency (i) claims the power to resolve a matter of great “political significance,” (ii) seeks to regulate a “significant portion” of the U.S. economy, or (iii) seeks to intrude into an area that is the “particular domain” of state law.⁸ For the second step, Justice Gorsuch explained that, when evaluating whether there is “clear congressional authorization” for the agency’s action, courts should consider (i) the context of the overall statutory scheme, (ii) the age and focus of the statute invoked by the agency, (iii) the agency’s past interpretations of the statute, and (iv) any mismatch between the agency action and its traditional area of expertise.⁹

In West Virginia, the Court concluded that the Clean Power Plan was an “extraordinary case” because the EPA had claimed to discover an “unheralded power” that would allow it to enact a new regulatory scheme that it never had pursued in the past with enormous economic effects.¹⁰ And Congress had not clearly conferred that sweeping authority on the EPA through Section 111(d) of the Clean Air Act because it had never before been interpreted to authorize a systemic-level scheme, as opposed to requiring particular pollution controls at the emissions source.¹¹

In dissent, Justice Elena Kagan, joined by Justices Sotomayor and Breyer, argued that Section 111(d) was a broad delegation of power that comprehends the authority to enact the regulatory scheme EPA deems best, and Justice Kagan criticized the majority for adopting a new canon of construction that addresses policy matters not contained within the text of the statute.

Practical Implications and Next Steps

The practical impact of the Court’s ruling in West Virginia will reach far beyond the EPA’s efforts to enact sweeping energy policy. It marks another tally in the win column for the principles underlying the “major questions” doctrine, which have become increasingly prominent in recent years. Indeed, the decision continues the Supreme Court’s recent trend of enforcing the separation of powers and rejecting broad claims of delegated authority, following the recent decisions of NIFB v. OSHA¹² and Alabama Association of Realtors v. HHS,¹³ both of which held that administrative agencies had acted beyond their statutory authorization. And the Court’s continued enforcement of the “major questions” canon ought to prevent agencies from claiming significant policymaking authority based on broad and vague statutes except where Congress clearly contemplated the delegation at issue.

The “major questions” canon’s principles apply to all agency actions across the administrative state. As a result, the doctrine will serve as an additional arrow in the quiver of parties seeking to challenge broad regulatory actions. The “major questions” doctrine is likely to play a significant role in evaluating potential challenges to proposed regulations that may take agencies outside their traditional areas of competence. For instance, one may anticipate the “major questions” doctrine playing a role in potential challenges against new regulations not only in the environmental sphere, but also by the Securities and Exchange Commission involving ESG disclosures, by the SEC or other financial regulators seeking to regulate markets involving cryptocurrencies and other blockchain products, or by potential regulations that may be proposed by the Federal Trade Commission seeking to alter traditional understandings of antitrust and competition law.

Footnotes

1. West Virginia v. EPA, 577 U.S. 1126 (2016).
2. Id.
3. Am. Lung Ass’n v. EPA, 985 F.3d 914 (D.C. Cir. 2021).
4. West Virginia, ___ U.S. at ___ (slip op. at 19).
5. Id. at 17-20 (citing Brown & Williamson, 529 U.S. 120; Alabama Ass’n. of Realtors, 120 S.Ct. 1291; Utility Air Regul. Group, 573 U.S. 302; Gonzalez v. Oregon, 546 U.S. 243 (2006); NFIB, 142 S.Ct. 661; MCI Telecomm. Corp. v. AT&T, 512 U.S. 218 (1994); King v. Burwell, 576 U.S. 473 (2015)).
6. West Virginia, ___ U.S. at ___ (slip op. at 17).
7. Id. at 19.
8. Id. at 9-11 (Gorsuch, J. concurring).
9. Id. at 13-15.
10. Id. at 20.
11. Id. at 28.
12. NFIB v. OSHA, 595 U.S. __ (2022).
13. Alabama Ass’n of Realtors, 594 U.S. __.

* The authors thank Dechert summer associates Tal Fortgang, Riley Compton, and Jack Foley for their assistance in the preparation of this article.