Opportunities, Risks in SCOTUS End to Chevron Deference: Lawyers

Several law firms have posted analyses of the Supreme Court Loper Bright decision that overturned the 40-year precedent of deference to agency interpretations of ambiguous laws first announced in Chevron.

A Sidley Food, Drug, and Medical Device Update says the Supreme Court decision to overturn Chevron deference to agencies such as FDA “is likely to present both opportunity and risk for those in FDA-regulated industries.” The update says the 1984 Chevron decision established a two-step framework that guided judicial review of agency actions.

At the first step, a court had to determine whether the law at issue was clear, and if so, it was to apply the law as written, even if the agency had a contrary interpretation. If a court determined that the law was not clearly written, however, it was required by step two to defer to an agency’s interpretation, so long as it was reasonable.

“The net effect of Chevron was that FDA was highly likely to prevail if the reviewing court found that the statute was ambiguous,” the Sidley paper says. “Indeed, a study of federal appellate court decisions since 2000 found that FDA had prevailed in every appellate opinion that reached Chevron step two based on a finding that FDA’s statutory interpretation was ‘reasonable.’ Among other things, this deference had the effect of reducing the willingness of companies to challenge FDA’s actions, even if those actions appeared inconsistent with congressional intent or the best reading of the relevant statute.”

Under the new Loper Bright decision, the 6-3 majority opinion said courts are to “exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the Administrative Procedures Act (APA) requires.” The decision says courts “may not defer to an agency interpretation of the law simply because a statute is ambiguous.”

Sidley attorneys say the decision did recognize the possibility of some forms of deference. It noted that the APA mandates that judicial review of agency policymaking and factfinding be deferential. It also acknowledged that Congress can delegate authority to an agency within constitutional limits. Third, SCOTUS said, when courts are engaged in statutory interpretation, they may use the agency’s interpretation to help inform their inquiry. And finally, the decision emphasized that overturning Chevron was not an invitation to revisit settled cases.

The paper cites these examples of FDA-related determinations that may now face additional or more formidable scrutiny:

• agency authority/jurisdiction;
• market exclusivity;
• agency rulemaking; and
• drug approvals.

“These are just a handful of examples of the types of FDA-related issues that may be litigated with different results under Loper Bright, the paper says. “The real-world impact of the decision, however, remains uncertain….Given the stakes, FDA-regulated entities should be actively evaluating both the risks and opportunities that Loper Bright may present in terms of both litigation and advocacy before the agency.”

Meanwhile, an analysis by Arnold & Porter attorneys says, “There is little doubt that we will see Loper Bright-driven changes to the rulemaking practices of FDA, 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.”

Arnold & Porter says 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.

In their post, three attorneys with Katten Muchin Rosenman say there will likely be more challenges to existing agency regulations. They note the potential for challenges is exacerbated by a SCOTUS decision in Corner Post v. the Board of Governors of the Federal Reserve System that extended the statute of limitations for filing suits over old regulations.

The attorneys say the two decisions “may ultimately make it harder for agencies to utilize the rulemaking process to expand upon the scope of existing statutes and therefore to impose new requirements in the healthcare and life sciences spaces…. In any event, there may be some periods of uncertainty for the impacted industries when litigation challenging agency actions become more common and the outcomes of such litigation are less predictable. The reduction in deference resulting from the Loper decision could also lead to scenarios where there are inconsistent court determinations across the country, creating circuit [court] splits. Healthcare and FDA regulatory industry participants will need to keep a closer eye on changing compliance requirements, especially those with a national footprint, depending on the locations where they have operations.”

The attorneys say that agencies may need to look to Congress to modify or expand current statutes to achieve policy goals and/or to obtain more statutory deference. “In a scenario where there is potentially more reliance on Congress,” they write, “the situation could be ripe for increased lobbying efforts by interested parties, including large industry groups, who could have more of an opportunity that they previously did to advocate for their positions and for less statutory deference to applicable agencies. There is also the potential that this could lead to more collaboration as there may be more of a need for agencies to ensure buy-in from impacted stakeholders.”

The Brownstein Hyatt Farber Schreck analysis says the full impact of the decision “will depend on how courts apply this new standard in specific cases, but given that the healthcare industry is one of the most heavily federally regulated industries, the consequences are likely to be far-reaching.” The attorneys say that new programs or initiatives based on broad statutory language, such as the new FDA proposed rule on laboratory-developed tests, are likely to be challenged.

The development of new drugs and medical devices may also slow down due to the impact on FDA decision-making, the post says. “Although the ruling is unlikely to challenge FDA’s individual product decisions, which are grounded in statute,” it says, “the process by which FDA reaches these decisions could face greater scrutiny. This could lead to more lawsuits and potentially longer lead times for agency decisions as government lawyers work to strengthen their legal positions.”

Looking ahead, the attorneys say, courts are more likely to be receptive to challenges against federal regulations, creating both difficulties and opportunities for healthcare providers, suppliers, payors, and others in the industry. Also, they say, “Congress, lacking the necessary expertise and staff, will face significant challenges in crafting complex regulatory legislation, needed to shift away from the use of ‘secretary shall’ language that is used abundantly in drafting healthcare laws. Lawmakers will need to hire and retain expert staff to write detailed legislation and navigate the partisan atmosphere in Congress, and they are expected to take more time fleshing out legislation to avoid legal challenges as judges will be more apt to override current and future regulations. This situation emphasizes the importance of staying engaged with legislative processes and advocating for clear and effective healthcare regulations.”

In their post, seven McDermott Will & Emery attorneys list these takeaways:

• under Loper Bight, courts must exercise their independent judgment to determine the best reading of the statutes that agencies administer;
• while courts may give respectful attention to agency reasoning where this reflects the agency’s expertise and experience, courts must never abdicate their responsibility to independently resolve statutory ambiguities;
• in circumstances where an agency acts under a claimed delegation of authority, courts must carefully scrutinize whether Congress authorized the agency action at issue and, if so, whether the agency acted with reasoned decision-making; and
• going forward, FDA’s assertions of authority will likely face more frequent legal challenges that courts are to consider by independently evaluating the agency’s interpretations of the Federal Food, Drug, and Cosmetic Act (FFDCA), even in areas where the agency has traditionally enjoyed extraordinary deference, such as in drug and device approval decisions.

The post lists these impacts on FDA’s authority to regulate:

• Loper Bright should result in greater scrutiny of FDA’s authority to regulate particular products, such as laboratory-developed tests;
• agency jurisdiction over dietary supplements is another area where the decision may offer regulated entities new opportunities to resist what they see as FDA overreach in asserting regulatory authority;
• challenges of FDA’s interpretations of the market exclusivity provisions in the FFDCA and the Waxman-Hatch Act should intensify; and
• challenges against FDA using guidances rather than promulgating regulations, typically focused on the approval process for generic drugs and the Orphan Drug Act, will likely gain more traction.