Trial News

Releasing a flurry of decisions at the end of its term, the U.S. Supreme Court addressed several issues relevant to the plaintiff bar, from the contours of bankruptcy law to overturning a landmark precedent affecting the interpretation of federal agency regulatory authority.

In the closely watched case of Loper Bright Enterprises et al. v. Raimondo (No. 22-451, June 28, 2024), the Court, in a 6-3 decision, overturned the longstanding precedent of Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., which established what is known as “Chevron deference” to agency interpretations of their statutes. The Court held that Chevron deference conflicted with the Administrative Procedure Act (APA), the federal law that governs how executive agencies promulgate rules and other aspects of administrative law, and courts’ duty to adjudicate how statutes are interpreted.

The underlying case involved a rule promulgated by the National Marine Fisheries Service that required fishers to pay for federal compliance monitors aboard their vessels. Groups representing the fishers challenged the rule, arguing that it exceeded the agency’s authority. Under Chevron deference, when a statute is silent or ambiguous on an issue, courts should defer to an agency’s interpretation, as long as it is permissible under the statute.

But the Court overruled Chevron, finding that courts may not defer to an agency’s interpretation of the law simply because a statute is ambiguous. Instead, the APA requires that courts exercise their independent judgment to determine whether an agency has acted within its statutory authority. The Court determined that the Chevron deference developed in the case law did not square with the APA. Referencing the seminal Supreme Court case Marbury v. Madison, the Court invoked the framers of the U.S. Constitution and their intention that interpreting laws would be “the proper and peculiar province of the courts.” The majority said that when the APA was enacted in 1946, it codified the principle that courts decide legal questions using their own judgment, not by substituting the judgment of an executive agency. Instead, it is the role of the courts to “decide all relevant questions of law.”

The Court found that the APA did not support delegating statutory interpretation to agencies when those statutes are silent or ambiguous and that Chevron deference “marked a departure” from traditional judicial interpretation of statutes. It reasoned that “a statutory ambiguity does not necessarily reflect a congressional intent that an agency, as opposed to a court, resolve the resulting interpretive question.” When a statute is ambiguous, courts should not defer to a “permissible” interpretation by the agency but should apply their “interpretive tools” to decide which interpretation is the best.

The majority noted that the traditional means that courts employ for interpreting a statute do not differ because agency rulemaking is involved versus other types of statutory interpretation that courts regularly use. The Court also rejected the argument that agency interpretation of statutes falls within the realm of policymaking and thus should be left to agency. Instead, it found that “resolution of statutory ambiguities involves legal interpretation” and that “courts interpret statutes, no matter the context, based on traditional tools of statutory construction.”

The Court noted that recurring questions about the application of Chevron had become a “distraction” for litigants, calling it “unworkable” and “fundamentally misguided.” The Court did caution, however, that its decision would not apply retroactively to cases that have already been decided under the Chevron framework. “The holdings of those cases that specific agency actions are lawful—including the Clean Air Act holding of Chevron itself—are still subject to statutory stare decisis despite the Court’s change in interpretive methodology.”

In a dissent, Justice Elena Kagan, joined by Justice Sonia Sotomayor and Justice Ketanji Brown Jackson, wrote that the majority’s ruling substituted “a rule of judicial humility” with one of “judicial hubris” that is likely to have far-reaching consequences “given Chevron’s pervasiveness.” The legal world is likewise concerned about the uncertainty that lies ahead for existing and future agency rulemakings. Within days of the Court’s ruling, for instance, three federal courts across the country invoked it to pause regulations related to extending the antidiscrimination protections for LGBTQ people from the 2020 Supreme Court case Bostock v. Clayton County to other statutes beyond Title VII.

Miriam Becker-Cohen, an appellate attorney at the Constitutional Accountability Center, said, “In the weeks and months ahead, judges, advocates, and government leaders will all grapple with what today’s decision means for the future of critical regulations—rules that ensure the safety of the water we drink and the air we breathe, that protect workers from discrimination and wage theft, and that hold corporations accountable for abusive consumer practices.”

A second Court ruling related to the APA could interplay with Loper Bright and affect agency rulemakings. In Corner Post v. Board of Governors of the Federal Reserve System (No. 22-1008, July 1, 2024), the Court ruled 6-3 to extend the statute of limitations to challenge an agency regulation under the APA. Altering the existing understanding of 28 U.S.C. §24019(a)—the statute that sets the statute of limitations for filing a claim against the United States—from beginning when an agency action becomes final, the Court held that a plaintiff’s claim “accrues” when the agency action injures the plaintiff. Because a cause of action does not accrue until a plaintiff “has the right to ‘file suit and obtain relief,’” the statute of limitations cannot begin to run until a plaintiff is injured. The same three justices dissented as in Chevron, with Justice Brown Jackson writing that “the Court’s baseless conclusion means that there is effectively no longer any limitations period for lawsuits that challenged agency regulations on their face.”

In the bankruptcy realm, the Court held in Truck Insurance Exchange v. Kaiser Gypsum Co. (No. 22-1079, June 6, 2024) that an insurer for a Chapter 11 debtor is considered a “party in interest” under the Bankruptcy Code and can challenge a proposed reorganization plan.

Two companies that manufactured and sold asbestos-containing products filed for Chapter 11 bankruptcy and, as part of their proposed reorganization plan, created an Asbestos Personal Injury Trust to address all present and future asbestos-related claims against them. Truck Insurance Exchange is the primary insurer for the two companies and must defend each asbestos personal injury claim covered by the insurance policy and indemnify the companies for up to $500,000 per claim. Under the reorganization plan, insured claims would be filed in the tort system, while uninsured claims would be submitted directly to the trust.

The insurer opposed the reorganization plan under §1109(b) of the Bankruptcy Code as a “party in interest.” The Fourth Circuit held that Truck Insurance was not a party in interest because the reorganization plan was “insurance neutral”—in other words, it did not alter the insurer’s obligations or contractual rights—and Truck Insurance submitted a cert petition with the Court to consider the question of who qualifies as a party in interest under the statute.

AAJ submitted an amicus brief arguing that Truck Insurance Exchange did not have Article III standing to be a proper party in interest and that it was engaging in an “unwarranted attack on the civil justice system in its endeavor to misuse the bankruptcy system by claiming a speculative injury that does not meet the requirements to be a party in interest authorized to object to a bankruptcy plan.”

In a unanimous decision, the Supreme Court held that an insurer with financial responsibility for bankruptcy claims is considered a party in interest under the statute and “may raise and may appear and be heard on any issue” in a Chapter 11 case. Analyzing the text and history of §1109(b), the court concluded that because an insurer could be “directly and adversely affected” by the reorganization plan, it qualifies as a party in interest.

Applying principles of congressional intent to the statute, the Court determined that in the bankruptcy context, Congress uses the term “party in interest” broadly and reflects the idea that parties that could be affected by a proceeding have participatory rights. In line with this interpretation of §1109(b), Truck Insurance is a party in interest, the Court concluded. It pointed to the fact that under the reorganization plan, Truck Insurance would assume the majority of the trust’s liability. Therefore, treating it as a party in interest would promote the statute’s goal of “a fair and equitable reorganization process.”