Supreme Court Decides Major Administrative Law Cases; Implications for FDA-Regulated Companies

Supreme Court Decides Major Administrative Law Cases; Implications for FDA-Regulated Companies

July 2, 2024, Covington Alert

At the end of this term, the Supreme Court issued two major administrative law decisions that change significantly the rules courts will apply in reviewing federal agency actions. These Supreme Court decisions will have meaningful implications for companies regulated by FDA.

In Loper Bright Enterprises v. Raimondo, the Court reviewed and reversed (by a 6-3 margin) the Chevron doctrine, which had been in place since 1984. Under Chevron, which had applied to federal agencies’ interpretation of statutes (including in formulating their regulations), courts reviewing agencies’ interpretations were to conduct a two-step analysis. Under step one, a federal court would ask if the statute was clear, using all available tools of statutory construction. If the statute was clear, the analysis would be over and the agency would prevail or not based on whether it had followed the statute. If the statute under review was not clear, under step two of Chevron, the court would examine whether the agency had followed a “reasonable” or “permissible” interpretation; any such interpretation would preserve the agency’s action.

Following Loper Bright, questions of statutory interpretation are now fully the province of a reviewing court:

The very point of the traditional tools of statutory construction—the tools courts use every day—is to resolve statutory ambiguities. That is no less true when the ambiguity is about the scope of an agency’s own power—perhaps the occasion on which abdication in favor of the agency is least appropriate.

The Court did emphasize, however, that

courts may—as they have from the start—seek aid from the interpretations of those responsible for implementing particular statutes. Such interpretations “constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance” consistent with the [Administrative Procedure Act].

The Court also emphasized that statutes will need to be analyzed on a statute-by-statute basis to determine what degree of discretion, if any, they afford agencies:

In a case involving an agency, of course, the statute’s meaning may well be that the agency is authorized to exercise a degree of discretion. Congress has often enacted such statutes. For example, some statutes “expressly delegate[]” to an agency the authority to give meaning to a particular statutory term. . . . Others empower an agency to prescribe rules to “fill up the details” of a statutory scheme . . . , or to regulate subject to the limits imposed by a term or phrase that “leaves agencies with flexibility,” . . . such as “appropriate” or “reasonable.”

While agencies still have the power of persuasion on questions of statutory interpretation that implicate their respective areas of expertise, this deference will no longer be automatic; agencies must now persuade that their interpretation of a statute is the right one, rather than simply one of the reasonable possible interpretations. As the opinion stated, “[i]n the business of statutory interpretation, if [the interpretation] is not the best, it is not permissible.” Though FDA has long been viewed as a quintessentially expert scientific agency, the future of deference to its legal interpretations is now in greater doubt.

Chevron was criticized by the plaintiffs in Loper Bright because it permitted agencies to flip between diametrically opposed but both “reasonable” interpretations of a statute. Although Loper Bright will greatly reduce such uncertainty, it may introduce greater geographic uncertainty as multiple courts review agency regulations and may come to differing conclusions in their respective jurisdictions. This possibility was present under Chevron, with different courts potentially reaching different conclusions about whether a statute was ambiguous or the agency’s interpretation was reasonable, but the elimination of Chevron deference may increase the likelihood of disparate outcomes across jurisdictions. As it has in some cases, FDA may choose to follow an unfavorable court decision only in the jurisdiction of the court that issued the decision, be it a federal district or a multi-state federal circuit. This approach could lead to an increase in forum-shopping based on the perceived ideological leanings of various jurisdictions. In other cases, FDA has announced it will consider opinions as limited to their facts, and Loper raises the question of whether FDA would further employ this strategy.

The reversal of Chevron raises questions about the scope of judicial review for important questions before regulatory agencies, including review of product approval decisions, which may involve both questions of law (such as the rules by which FDA will make product approval decisions under the Food, Drug, and Cosmetic Act (FDCA)) and fact (such as whether a particular product is safe and effective when judged under those rules).

The Supreme Court noted, however, that “we do not call into question prior cases that relied on the Chevron framework” and that these cases are “still subject to statutory stare decisis.” The opinion explained that “[m]ere reliance on Chevron cannot constitute a ‘special justification’ for overruling such a holding, because to say a precedent relied on Chevron is, at best, ‘just an argument that the precedent was wrongly decided.’”

In a second case, Corner Post v. Board of Governors of the Federal Reserve System, the Court considered the statute of limitations for challenges to agency rules under the Administrative Procedure Act. All justices agreed that a six-year statute of limitations applies to challenges under the APA, but by the same 6-3 margin as in Loper Bright, the Court held that actions to challenge a federal rule can be initiated within six years of the date of injury to the plaintiff, rather than the date the rule is finalized. The dissent criticized the majority opinion as giving “every new entity in a regulated industry its own personal statute of limitations to challenge longstanding regulations” and noted that “the constant churn of potential attacks on an agency’s rules by new entrants can harm all entities in a regulated industry.”

Together, these decisions greatly expand avenues to challenge administrative decisions that involve statutory interpretation. These avenues may be used against new decisions and old by longstanding industry participants, new market entrants, and also others outside of the direct scope of the regulation but who claim to be harmed. Moreover, regulatory agencies may push more rulemaking to “voluntary” guidance, which may open avenues of challenge when agencies seek to impose rules on industry in the guise of guidance.

The decisions raise numerous questions:

• How will agencies like FDA, CMS, and USDA change the way they write decisional memoranda and similar documents that involve statutory interpretation?
• How will courts handle future disputes concerning statutory provisions that were previously held ambiguous at Chevron step 1, and how persuasive will courts find agencies’ interpretations in these matters, particularly on complex scientific issues?
• Will the decision cause agencies to implement strategies to insulate their decisions from judicial review?
• Will the decision affect the roles of the legal functions of agencies, including the FDA Office of Chief Counsel, the CMS Division of HHS OGC, and the Office of General Counsel within USDA?
• How will Loper affect how regulated companies think about responding to adverse regulatory actions (e.g., denied product approvals) and enforcement actions?
• How will agencies implement unfavorable court decisions post-Loper?
• How will Congress adjust its approach to legislation and oversight activities in light of Loper?

These and other questions will be the subject of a webinar scheduled for later this July. You will receive a further communication inviting you to this event.

If you have any questions concerning the material discussed in this client alert, please contact the members of our Food, Drugs, and Devices practice.