Chevron deference is dead

Let's hope it doesn't become a vampire.

The headlines (including mine) say “Chevron deference is dead.”

And in a strictly legal sense, it is. SCOTUS’s ruling in Loper Bright today explicitly said, “Chevron [deference] is overruled.” (ICYMI, check out my piece in Discourse Magazine about the next regulatory reform steps that are needed post-Chevron)

That’s certainly a good thing from a good governance perspective. Under Chevron deference, if an agency interpreted an ambiguous statute in one way, and others (presumably regulated entities) interpreted it another way, the tie would go to the agency – the courts would defer to the agency’s presumed expertise. Now, in the post-Chevron world, regulatory agencies will have to justify their interpretation of ambiguous statutes without the advantage of deference to agencies in case of a tie.

Keep in mind all of this only matters if/when someone challenges an agency’s new rule on the grounds that the rule lies outside the agency’s statutory authority as granted by Congress. I’m not certain we’ll see agencies change their behavior all that much in the near future. Regulators can still propose and finalize new rules the same way they always have. They may not plan to rely on Chevron deference anymore, but they have many other ways to justify making a new regulation. Regardless, in the post-Chevron world, some subset of these new rules might be susceptible to legal challenges in ways they previously weren’t.

Of course, those challenges will take a while to move through the judicial process. Eventually, courts will likely devise some new judicial doctrine to use when deciding whether an agency’s argument is correct or a plaintiff’s argument is. Maybe courts will simply rely on the merits of the arguments of each side in each case, which I think is basically the same as steps 3 – 5 of Kisor. The important parts, in my interpretation, of the Kisor decision are: the court must engage in “an independent inquiry into whether the character and context of the agency interpretation entitles it to controlling weight” and the agency’s regulatory interpretation must reflect “fair and considered judgment.” Maybe courts will settle on some new two- or three-part test that relies upon expert witness economists testifying about the costs and benefits of the agency’s regulation.

I’m kidding – that certainly won’t happen. Chevron deference is about interpreting Congressional statutes and gleaning Congressional intent from them. Economics, unfortunately, doesn’t have much a role to play in that. But economics will still have a potentially greater role than before, if agencies rely on their own analyses to justify making new rules rather than rely on interpretation of ambiguous statutes. For example, suppose an agency makes a new regulation based on its analysis predicting that the regulation would tremendously increase safety at minimal cost. Great! Except someone doesn’t believe the agency’s analysis, and challenges the regulation in court. Then at least part of the court case could become expert witness economists comparing their analyses to those of the agency.

Regulators are smart, however, when it comes to avoiding susceptibility to legal challenge. If an agency suspects that it cannot justify a new rule in court on economics grounds, I suspect it will find another way to accomplish its goal. For example, by issuing guidance instead of a rule, or by relying on interpretation of existing regulations to create a new rule rather than on interpretation of ambiguous statutes.

Over the next few years, we’ll get to watch how challenges to new rules lead to new strategies by the agencies, and observe whether courts permit those new justifications under some new judicial doctrine. Ideally, each case will have to be argued on its own merits, and that could indeed become the new norm. Or it could be resurrected in some other form – one could certainly envision other forms of judicial deference that create more uncertainty about whether a regulation will or won’t withstand legal challenge. I’m not sure such an outcome would be better than Chevron was. Regulatory uncertainty can be an economic vampire, by sidelining business investment until firms have a better idea of whether their investments will be vulnerable to new regulations.

Still, the Loper Bright decision is a positive sign and whatever new doctrine arises could be a lot better than Chevron deference was. But let’s also not lose sight of the reason Chevron existed in the first place: ambiguous statutes. Let’s hope that the new normal in judicial review of regulations will in some way force Congress to be more specific about what it wants regulators to do. Ambiguity without Chevron might create more uncertainty (see my point about vampires above). Policymakers should not leave everything to the courts and to the behavior of agencies. Instead, Congress should draft less ambiguous authorizing statutes as well as take a stronger role in oversight in order to continue to nudge regulatory trends in the right direction. Whether reviewing large actions with something like the REINS Act or setting a limit on the number of rules that can be created with a regulatory budget, actively seeking more leverage is a better strategy than wait and see.