The Overturning of the Chevron Doctrine: A New Chapter for American Governance

The Supreme Court’s decision to overturn the Chevron Doctrine may not stay in the headlines for long, but its impact on our daily lives could be profound. This ruling has significant implications for the regulatory landscape, particularly affecting the administrative state and the legislative process. As I mentioned in my last post, this is something I’ve been pondering this year. As my LinkedIn profile shows, I'm not a lawyer, but someone like many of you who follow the news, increasingly understands the importance of the regulatory framework, and is interested in the impact these decisions will have on the business environment and the economy. So let's dive into rise and fall of the Chevron Doctrine – and please, if I miss any major points, let me know.

History and Rise of the Chevron Doctrine

The Chevron Doctrine originated from the 1984 Supreme Court case Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., which established a two-step process for determining the legality of a regulation, known as The Chevron Standard:

1. Step One: Determine whether Congress's intent is clear. If the statute is unambiguous, the court must follow the clear intent of Congress.
2. Step Two: If the statute is ambiguous, determine whether the agency’s interpretation is reasonable. If it is, the court should defer to the agency’s expertise.

This two-step test significantly empowered administrative agencies, allowing them to fill in legislative gaps and make policy decisions within their areas of expertise. Agencies could argue that the wording of a statute was ambiguous (and let's be honest, few laws are unambiguous in all applications), and as long as their interpretation was ‘reasonable,’ courts had to defer to the agency and could not overrule their interpretation.

Expansion of Administrative Power

The Chevron Doctrine facilitated the expansion of the administrative state:

• Regulatory Authority: Agencies could interpret and implement broad, ambiguous statutes, effectively creating and enforcing regulations with minimal judicial interference.
• Policy Shifts: With each new administration, agencies could reinterpret statutes, leading to significant policy changes without new legislation.
• Complex Regulatory Environment: The doctrine contributed to an increasingly complex regulatory landscape, impacting various sectors, including private equity.

Constitutional Concerns and Dissenting Voices

From the beginning, the Chevron Doctrine faced criticism for undermining the constitutional balance of power. Critics argued:

• Separation of Powers: Chevron blurred the lines between the legislative, executive, and judicial branches, allowing agencies to assume roles that should belong to the courts and Congress.
• Democratic Accountability: Agencies, staffed by unelected officials, wielded significant power to shape policy, often bypassing the democratic process and reducing accountability.

The Current Case: Arguments for Overturning Chevron

The recent Supreme Court decision to overturn Chevron centered on several compelling arguments:

• Judicial Responsibility: The Constitution vests adjudicative power in the courts, not in administrative agencies. Courts should interpret laws independently.
• Nondelegation Doctrine: Congress cannot delegate its legislative powers to agencies without clear guidelines. Chevron allowed agencies to fill legislative gaps, undermining this principle.
• Democratic Legitimacy: Allowing agencies to interpret ambiguous statutes enabled Congress to pass broad laws, avoiding politically difficult decisions. This practice is seen as undemocratic, insulating lawmakers from accountability.

Key Points from the Dissent

This decision was a 6-3 decision, with the dissenting justices raising several concerns:

• Expertise and Flexibility: They argued that agencies possess the necessary expertise to make informed decisions on complex issues, which courts lack.
• Uniformity and Stability: Chevron promoted uniformity in regulatory interpretations across jurisdictions. Without it, lower courts might reach different conclusions, leading to inconsistent regulations nationwide.
• Practicality: The dissent warned that eliminating Chevron could result in judicial overreach and instability in the regulatory framework.

Impact on Congress and Legislation

With the overturning of Chevron, Congress will face the responsibility to draft more precise legislation, clearly outlining policy goals and limiting agencies' interpretative leeway. Gone are the days of passing broad legislative goals and deferring to an agency on how best to achieve those goals. I imagine this will likely intensify the importance of lobbying in legislation drafting. With more precise language needed, the return on influencing the precise wording of legislation will increase. It will be interesting to see if private equity will be active in coalitions of industry groups joining lobbying efforts or challenging agencies' standing interpretations of vague legislation. (I already mentioned I'm not a lawyer, but from increased lobbying to increased litigation around regulations, am I wrong to believe my lawyer friends are the big winners here?)

Private equity professionals, where do you see this decision impacting the industry? Are there any immediate steps firms should be taking to prepare for this new environment following this landmark decision?