As dawn illuminates the majestic façade of the U.S. Supreme Court in Washington, a forthcoming decision by the highest court in the land threatens to reshape the regulatory landscape for federal agencies. In a strategic move, Republican-led states, spearheaded by Utah and Texas, are seizing the opportunity to challenge President Joe Biden’s administration’s rule allowing socially conscious investing in employee retirement plans.
The legal skirmish centers around the contentious issue of Chevron deference, a doctrine born from a 1984 legal precedent. The recent Supreme Court hearing involved a case concerning a government program monitoring overfishing off New England’s coast. Two fishing companies urged the justices to reconsider the doctrine, which obliges judges to defer to reasonable federal agency interpretations of ambiguous U.S. laws, known as “Chevron deference.”
In a Texas courtroom, U.S. District Judge Matthew Kacsmaryk presides over a lawsuit challenging Biden’s investing rule. Kacsmaryk, back in September, contended that the U.S. law governing retirement plans lacked clarity regarding the consideration of environmental, social, and corporate governance (ESG) factors in investment decisions. Despite this ambiguity, the Labor Department maintained that plans could weigh these factors as long as they prioritize traditional financial considerations.
Undeterred, the states, arguing that federal law mandates retirement plans to act “solely and exclusively” for financial benefit, filed a brief with the 5th U.S. Circuit Court of Appeals to reverse Kacsmaryk’s decision. The stakes are high, as the rule, finalized in November 2023, encompasses plans managing a whopping $12 trillion for over 150 million people, reversing restrictions imposed by the previous administration.
The states’ contention lies in the belief that the rule injects political agendas into investment decisions, potentially impacting the retirement savings of millions. Liberty Energy and an oil and gas trade group, both plaintiffs in the case, echo this sentiment.
The broader implications of overruling Chevron deference extend beyond this legal skirmish, reflecting a broader conservative effort to diminish what they dub the “administrative state.” This push seeks to curb the powers of federal agencies in interpreting laws, crafting rules, and implementing executive actions.
While the Supreme Court’s 2022 ruling favored this conservative movement, the current administration, represented by Biden, emphasizes the necessity of preserving Chevron deference. They argue that the doctrine acknowledges the need for agencies to “fill in the gaps” when legislation is ambiguous.
The recent hearing, however, leaves the fate of Chevron deference hanging in the balance. The conservative majority on the court raises skepticism about its continued relevance, yet hesitation lingers among some justices. As the legal saga unfolds, the decision’s repercussions could echo far beyond the courtroom, shaping the trajectory of agency powers and regulatory landscapes.
