Direct selling legal experts discuss implications in recent webinar
By David Bland
“[This decision] is not a slam dunk when fighting against the agency (FTC). It puts you on more level footing, but you still have to go in front of a judge.” —Brian Bennett, Senior VP of Government Affairs & Policy, Direct Selling Association (DSA)
“The big impact of that from FTC or other agencies is that they will no longer get the benefit of the doubt.” —Linda Goldstein, Partner, Baker & Hostetler LLP
In a landmark decision on June 28, 2024, the U.S. Supreme Court, in the consolidated cases of Loper Bright Enterprises v. Raimondo and Relentless Inc. v. Department of Commerce, overturned the Chevron Doctrine, fundamentally altering the judicial landscape for administrative law. The 6-3 decision broke on party lines, with the three Democrat Justices dissenting.
The decision mandates that courts exercise their independent judgment in determining whether federal agencies, such as the Federal Trade Commission (FTC), Food and Drug Administration (FDA), and the Environmental Protection Agency (EPA), have acted within their statutory authority, thus ending four decades of judicial deference to federal agencies when an existing statute is ambiguous.
Historical Context of the Chevron Doctrine
The Chevron Doctrine, established by the Supreme Court in 1984 in Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., required courts to defer to a federal agency’s reasonable interpretation of ambiguous laws. This principle was grounded in the belief that agencies possess specialized expertise in their respective fields, better positioning them to fill in legislative gaps. However, the recent ruling emphasizes that it is the role of the courts, not agencies, to resolve ambiguities in statutory language.
The cases at the heart of this decision involved the National Marine Fisheries Service’s interpretation of federal regulations. The controversy arose over a 2020 rule requiring vessel owners to bear the costs of on-board monitors. Lower courts had upheld this requirement under Chevron deference. However, the Supreme Court’s review concluded that the Administrative Procedure Act (APA) requires courts to independently interpret all relevant questions of law, even those involving ambiguous statutes.
Implications for Federal Agencies and Regulations
Chief Justice John Roberts, writing for the majority, asserted that the APA mandates judicial independence in statutory interpretation, thereby eliminating the Chevron presumption. However, Roberts also acknowledged that agency expertise could still inform judicial decisions, particularly in areas involving technical matters, through the less stringent Skidmore deference (Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)). Under Skidmore, an agency’s interpretation may be considered persuasive depending on its thoroughness, consistency, and validity.
The immediate impact of this ruling is expected to be an increase in legal challenges to federal agency regulations. The ruling specifically addresses non-final cases and future lawsuits, potentially leading to significant shifts in how regulations are enforced and interpreted across various industries.
Heightened Scrutiny for FTC Actions
The Court’s decision to overturn the Chevron Doctrine is poised to significantly impact the FTC and its regulatory authority. The FTC, responsible for enforcing broad mandates against the notoriously ambiguous “unfair or deceptive business practices,” may now face increased legal challenges to its rules and interpretations.
Under the previous Chevron framework, courts often deferred to the FTC’s expertise in interpreting ambiguous statutory language. However, without this deference, courts will scrutinize the FTC’s regulations more rigorously, potentially invalidating rules deemed overreaching or not clearly supported by statutory authority. This shift could lead to greater regulatory uncertainty and necessitate more precise legislative guidance to uphold the FTC’s enforcement actions, particularly those involving new and evolving market practices.
Webinar Insights: Industry Perspectives on Chevron
During a recent Social Selling News webinar discussing the Supreme Court’s decision, Linda Goldstein, a partner at Baker and Hostetler, and Brian Bennett, senior vice president of government affairs and policy at the Direct Selling Association (DSA), shared their insights. These direct selling legal experts emphasized the significant shift this ruling represents for the FTC and other regulatory agencies.
Goldstein highlighted that the FTC, which has long operated with considerable leeway in interpreting ambiguous statutes, will now face a stricter judicial review.
“In many enforcement actions, it really was as though the Federal Trade Commission wasn’t the plaintiff; They were kind of the judge and the jury,” Goldstein stated. This new requirement for courts to independently interpret laws diminishes the FTC’s previously broad authority and may curtail some of its more aggressive regulatory actions.
Goldstein further noted, “The big impact of that from FTC or other agencies is that they will no longer get the benefit of the doubt in cases, which they’ve really relied on.”
This shift in judicial review will likely lead to increased litigation as companies challenge FTC interpretations that previously benefited from Chevron deference.
Goldstein also raised an important point about the potential shift in the FTC’s litigation strategy. “In many cases, they come in with little to no evidence of harm or deception. And the companies being challenged always have the burden of producing evidence to counter what the FTC is saying,” she explained. The decision may now compel the FTC to bolster its evidentiary basis in future litigation to withstand judicial scrutiny, but this will only become evident over a series of cases.
Legislative and Regulatory Impacts in Washington
Bennett provided insights into the broader implications for Washington, D.C. He noted that the decision was met with enthusiasm by many trade associations and lobbyists, particularly those aligned with conservative viewpoints.
“The news returns power to the people, so to speak,” Bennett remarked, highlighting the sentiment that agency decisions should reflect the will of elected representatives rather than unelected regulatory staff. This shift is expected to increase the influence of amicus briefs and trade associations in shaping legal interpretations and regulatory frameworks.
Bennett also discussed potential changes in legislative practices, including a renewed focus on the reauthorization of federal agencies.
“We could see a lot more kind of reauthorization to the agencies,” he explained, referring to a process that has not been common practice for decades. This reauthorization could involve updating the statutory authority of agencies like the FTC to ensure their regulations align more closely with congressional intent. Additionally, Bennett noted an anticipated increase in oversight hearings, such as the upcoming budget hearing for the FTC, which will now carry more weight in scrutinizing agency actions.
Potential for Increased Litigation and Regulatory Uncertainty
The Supreme Court’s decision is likely to lead to a surge in legal challenges against federal regulations, fostering an environment of regulatory uncertainty. Companies and trade associations will likely leverage this new judicial scrutiny to contest agency interpretations that they find unfavorable. Goldstein pointed out that while this change may limit some regulatory overreach, it also necessitates more precise legislative guidance to ensure clear and consistent regulatory practices.
Bennett added that while the ruling is a positive step towards balancing power, it does not guarantee easy victories for companies challenging regulations. “It’s not a slam dunk fighting against the agency. It puts you on more level footing, but you still have to go in front of a judge,” he noted.
Bennett also highlighted potential impacts on specific regulatory areas, such as independent contractor status. He noted that ongoing litigation, such as the Department of Labor’s independent contractor rule, could be influenced by the Supreme Court’s decision. “This could play into it… because that is a very broad interpretive rule that they have,” Bennett said, suggesting that the decision could lead to more immediate impacts in such cases.
Broader Impact on Federal Regulations and Industry Practices
Goldstein emphasized that the ruling could encourage the FTC and other agencies to pursue more rulemaking to get a more specific reading of statutes, although these rules would be more vulnerable to legal challenges.
“They may try more rulemaking… but those rules are going to be much more vulnerable to attack,” Goldstein explained. She highlighted a recent district court decision that cited the Loper case, indicating that the FTC lacked authority for certain rulemakings, which could constrain the agency’s future regulatory actions.
Bennett echoed this sentiment, noting that while the ruling is an important step, it does not fundamentally change the compliance landscape for companies. “The standards haven’t changed at all, in terms of what you should be doing from a compliance standpoint,” he said, emphasizing that companies must continue to adhere to high standards to avoid regulatory scrutiny.
Goldstein further emphasized that the compliance landscape remains fundamentally the same despite the ruling. She suggested that while the FTC might need to bolster its evidentiary basis in future cases, the fundamental compliance requirements for companies remain unchanged.
Compliance Recommendations for Companies
When asked about direct selling compliance strategies in light of the Supreme Court’s decision, Bennett emphasized the need for companies to engage their leadership teams on the importance of compliance.
“I think this is just one more example of why the C-suite should be behind you and be your advocate and support you on these issues,” Bennett advised.
He stressed that while the day-to-day operations might not change immediately, it is crucial to ensure that company leaders understand and support compliance efforts. “Get as many eyes on this in your company as possible,” he recommended, underscoring the importance of internal advocacy and education.
State-Level Enforcement
A key point discussed in the webinar was the regulatory environment and the role of state attorneys general and the Department of Justice (DOJ). Goldstein noted that despite the limitations on federal agencies like the FTC, state attorneys general and the DOJ remain active in regulatory enforcement.
“When the FTC is less active, you see the state agencies ramp up,” Goldstein observed. This dynamic ensures that regulatory oversight persists, albeit through different channels. Companies must remain vigilant in their compliance efforts, understanding that state-level enforcement can be just as rigorous as federal oversight. This further underscores the importance of maintaining high compliance standards to mitigate the risk of regulatory actions from multiple fronts.
David Bland is the publisher of Social Selling News.
