Fifth Circuit sends ESG rule to lower court following Loper Bright

By

Ballotpedia staff

In this edition of Checks and Balances:

Federal stories:

  • Fifth Circuit sends ESG rule to lower court following Loper Bright.
  • Texas judge rules in favor of SpaceX’s challenges to NLRB’s adjudication structure.
  • Judge blocks DOL from expanding definition of fiduciary.

State stories:

  • Ballotpedia’s administrative state 2024 session-end legislation report.
  • Goldwater Institute asks California Supreme Court to limit governor’s emergency powers.

Commentary:

Pacific Legal Foundation attorney Molly Nixon on the significance of SCOTUS’ Corner Post, Inc. v. Board of Governors of the Federal Reserve System for those seeking to challenge administrative actions.

Regulatory Tally:

  • 163 proposed rules and 257 final rules added to the Federal Register in July.
  • OIRA’s regulatory review activity.
  • Highlighted rule affecting water heater manufacturers and energy consumers.

In Washington

Fifth Circuit sends ESG rule to lower court following Loper Bright 

What’s the story?

The United States Court of Appeals for the Fifth Circuit ruled July 18 that the U.S. District Court for the Northern District of Texas must rehear a case opposing the Department of Labor’s (DOL) 2022 environmental, social, and corporate governance (ESG) investing rule. Appeals Judge Don R. Willett said the lower court needed a chance to review the merits of the case after the Supreme Court overturned Chevron deference in Loper Bright Enterprises v. Raimondo on June 28.

The district court’s September 2023 decision upholding the rule relied on Chevron deference. District Judge Matthew Kacsmaryk said in the opinion courts had to defer to the DOL’s interpretation of the Employee Retirement Income Security Act of 1974 (ERISA) because the law was ambiguous and prior rules supported the department’s interpretation.

The background

A group of Republican states—led by Texas and Utah—filed a lawsuit in January 2023 challenging the DOL rule, which allowed the use of ESG investing considerations in pension plans governed by ERISA. 

The states argued the rule overstepped the DOL’s statutory authority under ERISA and conflicted with “ERISA’s clear command that fiduciaries act with the sole motive of promoting the financial interests of plan participants and their beneficiaries.”

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Texas judge rules in favor of SpaceX’s challenges to NLRB’s adjudication structure 

What’s the story?

The United States District Court for the Western District of Texas ruled July 23 in a SpaceX lawsuit that the National Labor Relations Board’s (NLRB) removal protections for administrative law judges (ALJs) are unconstitutional. 

Judge Alan Albright argued in his ruling, “SpaceX has demonstrated a substantial likelihood of success on its claims that Congress has impermissibly protected both the NLRB Members and the NLRB ALJs from the President’s Article II power of removal.” Albright blocked further NLRB proceedings against SpaceX in the challenged case.

The NLRB had not responded to the ruling as of August 8, 2024.

The background

SpaceX has filed two separate lawsuits against the NLRB in Texas courts this year. One argues the NLRB’s administrative proceedings violate the right to a trial by jury. The other (this case) argues the agency’s removal protections for ALJs are unconstitutional. Similar arguments challenging the constitutionality of the NLRB’s structure have followed from companies such as Trader Joe’s and Amazon. 

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Judge blocks DOL from expanding definition of fiduciary

What’s the story?

The United States District Court for the Eastern District of Texas on July 25 granted a preliminary injunction to block a Department of Labor (DOL) rule expanding the definition of an investment advice fiduciary under the Employee Retirement Income Security Act (ERISA). 

Judge Jeremy Kernodle argued the rule “conflicts with ERISA in several ways, including by treating as fiduciaries those who engage in onetime recommendations to roll over assets from an ERISA plan to an IRA.” 

Kernodle—citing the Supreme Court’s decision to overturn Chevron in Loper Bright Enterprises v. Raimondo—argued that the court “owes no deference to DOL’s interpretation of ERISA.” Based on the court’s reading of the law, he issued a stay to temporarily block the rule from taking effect in September and prohibited the DOL from enforcing the rule pending further litigation. 

The DOL argued in a statement, “The department continues to believe that this rule is essential to ensuring that retirement investors are protected,” according to Reuters. 

The background

The DOL published the Retirement Security Rule on April 25, which expanded the definition of an investment advice fiduciary to include any person rendering “investment advice for a fee or other compensation, direct or indirect” under ERISA. The rule, in part, subjects one-time advice to the fiduciary duties and requirements under the law. 

The Federation of Americans for Consumer Choice filed a lawsuit on May 2, arguing the rule “is inconsistent with the intent of Congress as expressed in ERISA, and the DOL has exceeded its statutory authority and acted arbitrarily and capriciously.”

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In the states

Ballotpedia’s administrative state 2024 session-end legislation report 

What’s the story? 

Ballotpedia will publish the Administrative State 2024 Legislation Report on August 16. The report contains our observations and analysis of the administrative state-related legislation in 2024. 

Launched in May 2024, Ballotpedia’s Administrative State Legislation Tracker monitors administrative state reforms at the state and federal levels. Bills are divided into categories based on how administrative agencies are affected and how the proposal fits into the five pillars of the administrative state: 

  • nondelegation – interplay between agencies and lawmakers
  • judicial deference – interplay between agencies and courts
  • executive control of administrative agencies
  • procedural rights – interplay between agencies and the people and organizations they regulate
  • agency dynamics – interplay among agencies and sub-agencies

This report highlights trends and takeaways on legislation introduced across the five pillars and covers all U.S. administrative state-related activity from the 2024 legislative session. 

The published report will be available here after August 16.

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Goldwater Institute asks California Supreme Court to limit governor’s emergency powers

What’s the story? 

Goldwater Institute, a conservative think tank, filed a brief in the California Supreme Court on July 19, asking the court to review the California Fifth District Court of Appeals’ decision in Ghost Golf v. Newsom. 

The case challenged Gov. Gavin Newsom’s (D) “Blueprint for a Safer Economy,” which established rules governing the expiration of pandemic shutdown emergency executive orders. The Fifth District Court upheld the plan.

Goldwater Institute opposed the decision, arguing, “[R]ules like those in the Blueprint, which govern how all businesses may operate going forward are entirely different; rules governing behavior in the indefinite future are legislation.” The organization also said the decision “holding that the executive branch may be vested with such authority is nothing short of a ruling that the Legislature may give the Governor the lawmaking power in toto.”

The California Supreme Court had not granted a review as of August 8.

The background

A group of California business owners filed the lawsuit in November 2020, arguing that the blueprint rules violated the separation of powers. 

Governor Newsom rescinded the blueprint in 2021, but the California Fifth District Court of Appeals proceeded with the case. The court’s decided in May 2024 that the blueprint was lawful and that the “ESA [Emergency Services Act] plainly authorizes the Governor to issue quasi-legislative orders because ”police power’ … is generally the power to legislate.’”

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Corner Post‘s impact on challenging agency actions

In a recent post published by Bloomberg Law, Pacific Legal Foundation attorney Molly Nixon argued the Supreme Court decision in Corner Post, Inc. v. Board of Governors of the Federal Reserve System is nonpartisan and “significant for the individuals and businesses affected by administrative actions every day.” The decision held the statute of limitations for filing an Administrative Procedure Act (APA) claim begins accruing when the plaintiff is injured by a final agency action, not when the action is promulgated. Nixon wrote:

Considering the growth of the administrative state, the APA is an important tool for Americans seeking to challenge government decisions. But that statutory guarantee only fulfills its promise if litigants can get to court. […]

The result in this case isn’t a partisan one; Corner Post’s argument was that the government hadn’t regulated enough. And the ruling in this plaintiff’s favor will benefit any new or newly affected plaintiff seeking to bring an APA challenge to any federal agency action, such as allegedly inadequate environmental regulations, permitting decisions, or labor rules.

Playing out a separation of powers theme in this term’s administrative law opinions, both the majority and the dissent in Corner Post recognized that if Congress wants a different result, the ball is in its court to decide on the relevant trade-offs in setting the time for challenging government actions.

Want to go deeper? 

  • Click here to read the full text of “Corner Post Helps Americans Challenge Government Decisions” by Molly Nixon.

Regulatory tally

Federal Register

The Federal Register publishes proposed and finalized administrative agency rules and regulations, policy statements, and interpretations of existing rules every federal working day. The Federal Register’s July highlights are as follows:

Office of Information and Regulatory Affairs (OIRA)

OIRA reviews all significant actions, defined as rules that have had or may have a large impact on the economy, environment, public health, or state and local governments and communities. Significant regulatory actions also include agency rules that may conflict with other regulations or with the priorities of the president. OIRA’s July regulatory review activity included the following actions:

  • Review of 41 significant regulatory actions. 
  • Recommended changes to 39 proposed or final rules; one rule withdrawn from the review process.
  • As of August 1, 2024, OIRA’s website listed 147 regulatory actions under review.
  • Notable regulation: OIRA approved the intent of the Office of Energy Efficiency and Renewable Energy’s final rule regarding energy efficiency standards for consumer water heaters on July 18, 2024, but made changes. The final rule, titled Energy Conservation Program: Energy Conservation Standards for Consumer Water Heaters, took effect on July 5, 2024. The rule will result in an estimated $2.6 billion in increased equipment costs for water heater manufacturers and an estimated $8.1 billion in consumer savings from increased energy efficiency, according to OIRA.
  • Want to go deeper? 

Every month, Ballotpedia compiles information about regulatory reviews conducted by OIRA. To view this project, visit: Completed OIRA review of federal administrative agency rules.