Chevron Overturned: What Does It Mean for Life Sciences Companies?

On June 28, 2024, the Supreme Court issued a 6-3 opinion in the combined cases of Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce, overturning the seminal 40-year-old decision Chevron v. Natural Resources Defense Council that established the principle that federal courts must defer to an agency’s reasonable interpretation of a statute when it is ambiguous — known as Chevron deference. As discussed below, this case has potentially far-reaching consequences for the life sciences industry.

Background: What Was Chevron?

For decades, federal courts have used Chevron deference to resolve issues of statutory interpretation. Under Chevron deference, when a court was reviewing an agency’s interpretation of a statutory provision, courts were directed to follow a two-step analysis.

Under step one, a court first determined whether a statute was ambiguous, i.e., “whether Congress has directly spoken to the precise question at issue.” If so, the court “must give effect to [such] unambiguously expressed intent.” If the statute was ambiguous after exhausting all tools of statutory interpretation, the court proceeded to step two.

Under step two, the court assessed whether the agency’s interpretation of the statute was reasonable. Courts were directed to defer to the agency’s interpretation of the statute if it represented a “permissible construction of the statute.” The court later narrowed the scope of Chevron deference to encompass only agency interpretations reached through formal proceedings with the force of law (e.g., notice-and-comment rulemaking or adjudications).

Chevron has been cited more than 19,000 times, making it the third-most cited civil case ever. Of particular note for Arnold & Porter’s Food and Drug Administration (FDA)-regulated clients, Chevron was often cited in decisions upholding statutory interpretations of the Federal Food, Drug, and Cosmetic Act advanced by FDA in agency rulemaking.

Chevron Overturned

In Loper Bright and Relentless, the Supreme Court considered parallel challenges to a rule promulgated by the National Marine Fisheries Service that established “industry-funded [at-sea] monitoring programs in New England fishery management plans.” In each case, a group of commercial herring fishing companies challenged the rule, asserting that the Magnuson-Stevens Fishery Conservation and Management Act of 1976 did not authorize the National Marine Fisheries Service to issue a rule requiring industry to bear such costs. Both the U.S. Court of Appeals for the District of Columbia Circuit and the U.S. Court of Appeals for the First Circuit applied Chevron deference to uphold the at-sea monitoring rule, concluding that the agency’s rule was a “reasonable interpretation of its authority.”

The Supreme Court granted certiorari in both cases, limiting their review to “whether Chevron should be overruled or clarified.” In a 6-3 decision, the Supreme Court expressly overturned Chevron and remanded the cases to the appellate courts for further proceedings consistent with the opinion.

Writing for the majority, Chief Justice John Roberts held that “Chevron is overruled. Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the [Administrative Procedure Act (APA)] requires.” (Op. 35). Justices Thomas, Alito, Gorsuch, Kavanaugh, and Barrett joined the majority. Justice Thomas wrote a concurring opinion to say that he believed that outcome was also constitutionally required; Justice Gorsuch concurred to emphasize that stare decisis principles warranted overruling the decision. Justice Kagan, joined by Justice Sotomayor, wrote a dissenting opinion, which Justice Jackson joined with respect to Relentless (she was recused from Loper Bright because she briefly sat on the D.C. Circuit panel that had considered it).

The APA, enacted by Congress in 1946, governs the process by which federal agencies develop and issue regulations. The majority opinion concluded that Chevron conflicts with Section 706 of the APA, which provides that “the reviewing court” is to “decide all relevant questions of law” and “interpret … statutory provisions.” The majority concluded that Section 706 “makes clear” that agency interpretations of statutes are “not entitled to deference.” The majority opinion juxtaposed this language against the APA’s mandate “that judicial review of agency policymaking and factfinding be deferential.” (Op. 14 (citing Section 706(2)(A) of the APA)).

The majority further stated that Congress “expects courts to handle technical statutory questions.” (Op. 24). Emphasizing the Federalist Papers and the Framers’ understanding of the judicial branch’s role, the Court cited numerous cases from the 19th and early 20th centuries holding that, while they might give respect to the government’s views, it was for the courts to determine questions of statutory interpretation. As background on the historical shift that brought about Chevron, the Court noted that before the APA, any deferential review applied by the courts “was cabined to fact-bound determinations.” (Op. 11).

However, the majority recognized that “although an agency’s interpretation of a statute ‘cannot [now] bind a court,’ it may be especially informative ‘to the extent it rests on factual premises within [the agency’s] expertise.” (Op. 25 (quoting Bureau of Alcohol, Tobacco and Firearms v. FLRA, 464 U.S. 89, 98, n. 8 (1983))). The Court further stated that courts can continue to rely on an agency’s “‘body of experience and informed judgment’… at its disposal,” (Op. 25, quoting Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)), and that “interpretations issued contemporaneously with the statute … and which have remained consistent over time, may be especially useful in determining the statute’s meaning.” (Op. 17).

The majority explicitly noted that Congress often enacts statutes expressly granting an agency discretionary authority related to the statute’s implementation, such as when Congress tells agencies to “regulate subject to the limits imposed by a term or phrase that leaves agencies with flexibility, such as ‘appropriate’ or ‘reasonable.’” In such cases, the role of the court “under the APA is, as always, to independently interpret the statute and effectuate the will of Congress subject to constitutional limits.” (Op. 18). However, the majority cautioned that courts should not pretend, as Chevron required, “that ambiguities are necessarily delegations.” (Op. 26).

Lastly, the majority emphasized that it was “not call[ing] into question prior cases that relied on the Chevron framework. The holdings of those cases that specific agency actions are lawful … are still subject to statutory stare decisis despite our change in interpretive methodology. Mere 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.’ That is not enough to justify overruling a statutory precedent.” (Op. 34-35).

Justice Kagan, in dissent, wrote that, “[i]n one fell swoop, the majority today gives itself exclusive power over every open issue — no matter how expertise-driven or policy-laden — involving the meaning of regulatory law.” (Dissent 3). She emphasized that Chevron has “support[ed] regulatory efforts of all kinds,” including “keeping air and water clean, food and drugs safe, and financial markets honest.” (Dissent 2). Justice Kagan argued that “abstract analysis” by judges “can only go so far” when defining complex areas of statutory silence such as, “[w]hen does an alpha amino acid polymer qualify as … a ‘protein’” within the Public Health Service Act definition of “biological product.” “I don’t know many judges who would feel confident resolving that issue …. But the FDA likely has scores of scientists on staff who can think intelligently about it … and arrive at a sensible answer.” (Dissent 9). Justice Jackson made a similar point during the Relentless oral argument, when she asked whether “Congress wanted the courts to decide … what it means for a study to be adequate or well-controlled” in the context of a new drug approval. (Tr. at 67).

Implications for the Life Sciences Industry

Although the Supreme Court’s decision has long been anticipated, it is still likely to have far-reaching implications for the companies in the life sciences sector. While the Supreme Court has not relied on Chevron in recent years, many lower courts have deferred to agency interpretations, particularly in dealing with complicated statutes like the Medicare statute, the Federal Food, Drug, and Cosmetic Act, and the Public Health Service Act.

There is little doubt that we will see Loper Bright-driven changes to the rulemaking practices of FDA, Centers for Medicare & Medicaid Services (CMS), and other agencies, as well as increased lobbying in Congress (including by agencies) to provide clearer and more prescriptive legislation for agencies. Moreover, we are likely to see a significant increase in litigation challenging agency interpretations of existing and future statutory provisions in certain district courts. While in the long run, eliminating Chevron will prevent agencies from changing their views of statutes every four or eight years, for the immediate future the change in interpretive methodology will create uncertainty. That being said, the Supreme Court has not relied on Chevron deference since 2016, and FDA, CMS, and other federal agencies have likely already been planning for this potential change in deference, following the close of oral arguments in January.

Arnold & Porter is monitoring the implications for ongoing and future litigation, including numerous ongoing cases challenging the drug pricing provisions of the Inflation Reduction Act, as well as recent litigation filed concerning hot topics in FDA law, like the final rule on laboratory developed tests and orphan drug exclusivity. Interested parties could see an opening to challenge an agency’s interpretations of statutes it administers. The opinion limited its reach to regulations interpreting ambiguous statutory language and did not question agencies’ authority to regulate where explicitly authorized to “regulate subject to the limits imposed by a term or phrase that leaves agencies with flexibility, such as ‘appropriate’ or ‘reasonable.’” Thus, a first step in determining whether a regulation might be subject to challenge is to determine the agency’s basis for regulatory authority, as well as whether that interpretation is contemporaneous to statutory enactment and has been consistently held. Even where an agency has explicitly been granted regulatory authority, it may be possible to challenge particular regulations under “the major questions doctrine” or similar principles. And there are indications that the Supreme Court increasingly is skeptical of Congress delegating broad authority to agencies.

While the opinion took pains to emphasize that it was not calling into question decisions upholding regulations under Chevron, it simply said reliance on Chevron was itself not sufficient to support overruling. Most of those cases (around 60%, according to one study) were decided at Chevron step two. If other stare decisis considerations (such as the quality of the decision’s reasoning, the workability of the rule, or reliance on the decision) also would support reconsideration, it may be possible to seek to have them overruled, as the dissenting opinion in Loper Bright foreshadows. And, depending on how the Court resolves Corner Post v. Board of Governors of the Federal Reserve System, which is set to be decided on July 1, parties may be able to challenge longstanding regulations if they bring suit within six years of when they were first affected by the rule.

There may also be an opening for regulated industries to engage with the agencies to modernize or clarify authorities, or by encouraging Congress to clarify ambiguous statutes. Because the majority decision was based on its interpretation of the APA, it is theoretically possible that Congress could amend the act to reinstate deferential review of agency interpretations of ambiguities. While the concurring opinions suggested that would not be constitutionally permissible, most of the Justices did not express a view on the issue.

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Our team will continue to follow and report on developments in this area. Please contact any author of this Advisory or your regular Arnold & Porter contact if you have questions concerning how the Loper Bright and Relentless decisions could affect your organization.

* Claire Dennis contributed to this Advisory. Ms. Dennis is admitted only in Washington, practicing law in the District of Columbia during the pendency of her application for admission to the D.C. Bar under the supervision of lawyers in the firm who are members in good standing of the D.C. Bar.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.