Chevron meets ESG

By

Caitlin Styrsky

The Checks and Balances Letter delivers news and information from Ballotpedia’s Administrative State Project, including pivotal actions at the federal and state levels related to the separation of powers, due process, and the rule of law.

This edition: 

In this month’s edition of Checks and Balances, we review a ruling from the U.S. District Court for the Northern District of Texas applying Chevron deference to uphold a Department of Labor rule allowing retirement plans to consider environmental, social, and corporate governance (ESG) factors in investment decisions; President Biden’s (D) veto of two Congressional Review Act (CRA) resolutions aiming to nullify Fish and Wildlife Service rules on endangered species classifications; a ruling from the U.S. District Court for the Southern District of Texas invoking the major questions doctrine to block a minimum wage increase for federal contractors; and oral argument before the U.S. Supreme Court in a constitutional challenge to the funding structure of the Consumer Financial Protection Bureau (CFPB).

At the state level, we take a look at an opinion from the Nebraska attorney general arguing that two inspector general offices violate the separation of powers; and guidance in North Carolina aiming to regulate private pool rentals.

We also highlight recent commentary from attorney and author Alexander MacDonald on what he refers to as the private-nondelegation doctrine. We wrap up with our Regulatory Tally, which features information about the 169 proposed rules and 223 final rules added to the Federal Register in September and OIRA’s regulatory review activity.

In Washington

Chevron meets ESG

What’s the story?

Judge Matthew Kacsmaryk of the United States District Court for the Northern District of Texas issued a ruling on September 21, 2023, denying a request to block the Department of Labor’s (DOL) rule allowing retirement plans to consider environmental, social, and corporate governance (ESG) factors in investment decisions. Judge Kacsmaryk invoked the Chevron doctrine, arguing that the court must defer to the department’s interpretation of the law.

The department issued the rule, effective January 30, 2023, in an effort to amend the Employee Retirement Income Security Act of 1974 (ERISA) to allow retirement plans to consider certain ESG factors in investment-related decisions. The rule replaced a Trump administration rule that required fiduciaries under ERISA to consider only financial returns and material risk factors in their investment decisions.

Texas and Utah, joined by 24 additional Republican-led states, filed suit in an effort to block the rule. The plaintiffs argued in part that the rule was arbitrary and capricious, violated the Administrative Procedure Act, overstepped the department’s statutory authority under ERISA, and “contravenes ERISA’s clear command that fiduciaries act with the sole motive of promoting the financial interests of plan participants and their beneficiaries.”

Judge Kacsmaryk found that the rule did not violate ERISA or the APA, arguing that “while the Court is not unsympathetic to Plaintiffs’ concerns over ESG investing trends, it need not condone ESG investing generally or ultimately agree with the Rule to reach this conclusion.” The judge invoked Chevron deference and argued that the court must defer to the DOL’s interpretation of ERISA because the law does not directly speak to the question at issue.

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Biden vetoes two CRA resolutions

What’s the story?

President Joe Biden (D) issued two vetoes of Congressional Review Act (CRA) resolutions on September 26, 2023. S.J. Res. 9 and S.J. Res. 24, respectively, aimed to nullify two rules from the Fish and Wildlife Service that reclassified the northern long-eared bat as an endangered species and classified two lesser prairie chicken population segments as threatened and endangered.  

Lawmakers in support of the resolutions argued that the rules would negatively impact the agricultural industry in affected areas. Biden argued in his veto messages that each resolution “would overturn a science-based rulemaking that follows the requirements of the law, and thereby undermines the ESA.”

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District judge blocks federal contractor minimum wage increase, invokes major questions doctrine

What’s the story?

Judge Drew Tipton of the U.S. District Court for the Southern District of Texas on September 26, 2023, invoked the major questions doctrine in a decision that blocked a Department of Labor (DOL) rule increasing the minimum wage for federal contractors from being enforced in Texas, Louisiana, and Mississippi.

President Biden issued Executive Order (EO) 14026 in April 2021 requiring the DOL to issue regulations increasing the minimum wage for federal contractors to $15 an hour. Texas, Louisiana, and Mississippi challenged the executive order and subsequent DOL rule, arguing in part that the order overstepped Biden’s statutory authority under the Procurement Act and that Congress has the authority to set the minimum wage.   

Judge Tipton ruled that President Biden did not have the authority to issue the executive order and based his ruling in part on the major questions doctrine—an administrative law principle that Congress must provide clear authorization to an agency before the agency can issue regulations on matters of economic or political significance. The judge agreed with the plaintiffs’ argument that the executive order “presents an issue of vast economic and political significance,” and that the Procurement Act did not “[speak] clearly in granting the President the power to unilaterally raise the minimum wage of the employees of federal contractors.”

The DOL, as of October 12, 2023, added a notice to their website stating that “the minimum wage requirements of the final rule implementing Executive Order 14026 are not currently being enforced as to contracts or subcontracts to which the states of Texas, Louisiana, or Mississippi (including their agencies) are a party,” as a result of the court order. 

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SCOTUS hears oral argument in constitutional challenge to CFPB funding structure

What’s the story?

The United States Supreme Court on October 3, 2023, heard oral in Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited – a case challenging the constitutionality of the funding structure of the Consumer Financial Protection Bureau (CFPB). 

Industry groups sued the CFPB after the bureau issued a rule aiming to enforce disciplinary action against certain payday lenders. A three-judge panel of the United States Court of Appeals for the Fifth Circuit rejected the challenge to the rule but held that the CFPB’s funding structure, which flows from the Federal Reserve rather that through congressional appropriations, violates the appropriations clause. 

SCOTUSblog analyst Amy Howe wrote that the court was divided at oral argument, with Justice Clarence Thomas “express[ing] concern that if the CFPB’s funding structure passes constitutional muster, there would be very few restrictions on how Congress could allocate funding.” Howe also observed that “other justices were equally concerned about what upholding the lower court’s decision might mean for other agencies.”

The case is expected to be decided in 2024.

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In the states

Nebraska attorney general finds state ombudsman offices violate separation of powers

What’s the story? 

Nebraska Attorney General Mike Hilgers (R) issued an opinion on August 16, 2023, arguing that the Offices of the Inspector General of Child Welfare and Inspector General of Corrections – two offices housed within the Nebraska Ombudsman’s Office in the state’s legislative branch – are unconstitutional and violate the separation of powers. 

The ombudsman’s office, also known as the Office of the Public Counsel, is responsible for “promot[ing] accountability in government by independently and impartially investigating issues related to state agencies and employees,” according to the state legislature’s website. 

Hilgers’ opinion argued that the offices’ reporting requirements and investigatory tools were unconstitutional because the state “constitution does not permit officers of one branch unrestrained access into the information of another.” Hilgers continued that the authority granted to the offices under the Inspector General Acts violated the separation of powers by “interfer[ing] with the Executive’s and Judiciary’s constitutional responsibilities and interests.”

Following Hilgers’ opinion, the Nebraska Department of Health and Human Services and the Nebraska Department of Correctional Services limited the inspector general offices’ access to information to that which is available to the general public. The departments stated that they “will continue to respond to the ombudsman’s office requests when the information is not confidential or statutorily protected,” according to Omaha World-Herald. 

The state legislature hired an attorney in September 2023 to assist the legislature in navigating next steps regarding the attorney general’s opinion. State Senator Terrell McKinney (D) stated, “Not having any type of oversight and people to answer concerns is just bad,” according to Omaha World-Herald.

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North Carolina guidance seeks to regulate private pool rentals

What’s the story? 

The North Carolina Department of Health and Human Services (DHHS) is seeking to enforce 2021 guidance stating that homeowners renting out private pools are subject to state regulations on public pools. 

The response followed media attention in the summer of 2023 on an app, Swimply, that provides a platform for homeowners to rent out their private pools. Hosts on the app reported receiving letters from DHHS directing them to comply with state guidance regarding operating a public pool. The cited guidance states that renting or opening a pool to the public at a single-family dwelling “explicitly expand[s] the use of the pool … and the pool is no longer private.” Swimply responded, arguing that the state’s Vacation Rental Act maintains pools at rented homes as private pools. 

Jon Sanders, the director of The John Locke Foundation’s Center for Food, Power, and Life, argued in The Carolina Journal that the guidance is an example of regulatory dark matter because it seeks to regulate private pool rentals without following the formal rulemaking process.   

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The private-nondelegation doctrine

Attorney and author Alexander MacDonald argued in an article published by The Federalist Society that California’s new fast-food regulatory council made up of worker and business representatives violates what he refers to as the private-nondelegation doctrine by giving regulatory power to private parties:

The result is a regulatory structure at odds with democratic ideals. We generally think that laws should come from people accountable to the public. But private regulation subverts that principle. It allows interested parties to impose their policies on competitors, who have no way to resist. The competitors cannot petition the government, which has no say over the underlying policies. Nor can they petition the real decisionmakers, who have no incentive to listen. Instead, they can either submit or go out of business. If due process means anything, it surely means that we cannot force people to make that choice—no matter how politically expedient the arrangement may be.

Want to go deeper? 

  • Click here to read the full text of “Burgers with a Side of Bias: Why a New Fast-Food Law in California Likely Violates the Private-Nondelegation Doctrine” by Alexander MacDonald.

Regulatory tally

Federal Register

Office of Information and Regulatory Affairs (OIRA)

OIRA’s September regulatory review activity included the following actions:

  • Review of 53 significant regulatory actions. 
  • Two rules approved without changes; recommended changes to 48 proposed rules; three rules subject to a statutory or judicial deadline.
  • As of October 2, 2023, OIRA’s website listed 122 regulatory actions under review.
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