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Ropes & Gray attorneys provide timely analysis on legal developments, court decisions and changes in legislation and regulations.
Greg Levine: Hello, and welcome to Non-binding Guidance. I’m Greg Levine, a partner in the life sciences regulatory and compliance practice group in Ropes & Gray’s Washington, D.C. office. I’m joined today by my partner Doug Hallward-Driemeier, who heads our firm’s appellate and Supreme Court practice, and by Beth Weinman, counsel in our life sciences regulatory and compliance practice group. Today, we’re here to talk about some recent changes in administrative law and the impact that these changes are expected to have for entities that are regulated by federal agencies like the FDA.
By some counts, Chevron v. NRDC has become the most cited case in federal administrative law. Yet, this summer, the Supreme Court overruled the case in Loper Bright v. Raimondo. The Supreme Court’s decision to do so has generated a significant amount of press and is likely to have reverberations for years to come. We will get into all of that today, while also explaining how, while it is an important case, it is not necessarily the total sea change that some have claimed it to be.
To start us off, Beth, will you provide a brief overview of the Chevron case and why it was so important?
Beth Weinman: Sure. So much of federal agency action—like rulemaking and adjudication—is governed by the Administrative Procedure Act, or the APA. This is a statute enacted in 1946 after the executive branch’s rapid growth in the New Deal Era, and it sets the rules for how executive agencies can behave and when their actions are out of bounds.
Part of the APA addresses judicial review, and it authorizes the courts to set aside agency rules that are “arbitrary and capricious, an abuse of discretion, or otherwise not in accordance with law,” and also, I should say, agency determinations that meet any of these categories. Agency actions are often challenged as any of the above—arbitrary and capricious, an abuse of discretion, or not in accordance with law—and disputes in these cases center on what the law actually means. And the question is: Who gets to decide that question?
In Chevron v. NRDC—this is a Supreme Court case that was decided back in 1984—the Court created a set of rules to address how courts should approach judicial review under the APA, and how much weight to accord an agency’s interpretation of governing law. In that particular case, the EPA, under the Reagan administration, had passed a rule that interpreted a provision of the Clean Air Act in a way that the plaintiffs in the case didn’t like. They thought the rule would undermine Clean Air Act requirements and that it didn’t comport with congressional intent in passing that legislation. The Supreme Court disagreed.
The Court set up a two-step test for deciding questions of statutory interpretation in APA challenges.
• At step one, the Court held that courts should employ traditional tools of statutory construction to determine whether Congress has spoken directly to the precise question at issue in the case. If the court found that indeed Congress had spoken to that issue, and that congressional intent was clear, then the court was required by Chevron to give effect to congressional intent, regardless of how the agency viewed the meaning of the statutory provision in question. However, if the statute was silent or ambiguous with respect to the specific issue in the case, then the court was to proceed to step two.
• At step two, courts were required to uphold the agency’s interpretation of the provision in question so long as it was based on a “permissible construction” of the statute—in other words, the court should uphold the agency’s interpretation so long as it’s reasonable.
In Chevron, the Supreme Court determined that agencies were best situated to resolve questions about laws committed to their care by Congress, and courts shouldn’t disturb an agency’s interpretation about the law unless it determined that that interpretation was not one that Congress would have sanctioned. This decision set out what became known as “Chevron Deference,” and it has given federal agencies the upper hand in litigation since the case was decided until just a few months ago.
Greg Levine: Thanks, Beth. Now, that was forty years ago when that case was decided. Doug, how has it been applied in the time since then?
Doug Hallward-Driemeier: You are right that the times have changed. It’s probably helpful to remember that the Chevron decision was written by Justice Scalia—one of the lions of the more conservative end of the judicial spectrum. It was regarded at the time as a reflection of judicial humility or small-c judicial conservatism because it took courts out of the business of making policy—that was the theory—and the policymaking would be done by the political branches. But in the meantime, I think it really has expanded and contracted in shape, probably reached its zenith in a case called National Cable & Telecommunications Association v. Brand X Internet Services—that was back in 2005. That decision was written by another lion of the conservative side of the judicial spectrum, Justice Thomas.
In that case, the Supreme Court held that if the statute was indeed ambiguous, then the agency’s construction to have it mean one thing would have to be upheld, and then, a change of agency position later on, under a new administration, to have it mean “not x” (the opposite), would also have to be upheld if it was also a reasonable construction of the statute. Indeed, I think it is the logic of Chevron that that is what it means, and yet, it, in very stark terms, underscored that the logic of Chevron was that in fact the statute enacted in Congress could mean both “x” and “not x,” two opposite things, without Congress ever having enacted any amendment to the statute. That highlighted that it really was not Congress that was doing the legislating, but the agencies. In that case, the policy underlying the litigation was whether telecommunications companies would be regulated as common carriers or not common carriers—a pretty fundamental question—and the courts held that the regulators could do either of those things. This is a major policy decision that Congress had not made, and the agencies could do it either way.
Since Loper Bright, even though Chevron has remained on the books for an additional 20 years, I think we’ve seen a consistent erosion of the Chevron doctrine. That’s going back to something that Beth highlighted before—the first step of the Chevron analysis is to apply all of the traditional canons or tools of statutory construction. At least at the Supreme Court, the Court started to really take that seriously and more and more often say, “We don’t think that this statute is ambiguous as written. We think Congress has spoken to the question at issue.” And so, that coincided with another doctrine that was arising in significance at the Court, and that’s called the “major questions” doctrine.
The thought behind the major questions doctrine is something we’ll get at in greater length later in this discussion, I think, but it’s just the basic notion that the agencies should not be exercising authority over these significant policy questions when Congress itself hasn’t been clear that it’s delegating that authority. In recent years, we’ve had the Supreme Court citing the major questions doctrine as a way to avoid applying the Chevron doctrine, as in West Virginia v. EPA. We’ve had the Court saying, “No, we don’t need to resort to Chevron because we think the statutory language is clear.” That was true in, for example, a case, American Hospital Association v. Becerra, in which as it came up through the lower courts, it was all about Chevron doctrine—it was all about whether the statute was ambiguous and then whether the agency’s construction was reasonable. When it got up to the Supreme Court, they decided that case without reference to Chevron at all, even though that had been the focus of the party’s briefing. So, there’s been, in that sense, I think, a slow erosion of the doctrine as we got to the lead-up of this momentous decision at the end of term.
Greg Levine: Thanks for that, Doug. I think we can see how Chevron arose, it reached its zenith, and then clearly the courts have been applying deference less and less. Why don’t we talk now about the actual decision in Loper Bright. What did the Court decide—what were the grounds? And then, where does it leave us now?
Doug Hallward-Driemeier: Loper Bright and actually there was a second case as well, Relentless v. Department of Commerce—the two of them came up to Supreme Court at the same time (but we can just shorthand it with Loper Bright). It arose under the National Marine Fisheries Service Act. The service was requiring fishing vessels to subsidize the presence of federal monitors on the boats, who were there to prevent overfishing, to enforce regulations—and the question was whether that was permissible under the statute. When it got up to the Supreme Court, they took it as a case that would allow them to decide whether Chevron remained good law, because lower courts had relied on Chevron to defer to the agency’s construction. The majority of the Court held that not only were they overturning Chevron, but that Chevron had been wrongly decided when it was first issued, and the reasoning was that it was inconsistent with the Administration Procedure Act as well as constitutional separation of powers.
Beth mentioned that under the APA, one of the grounds of challenging is that the regulation or agency action is not in accordance with law. As a matter of constitutional separation of powers jurisprudence, we know that since Marbury v. Madison—one of the earliest, most fundamental constitutional law decisions of the Supreme Court in the early 1800s—it has been the courts’ job to declare what the law is. In interpreting statutes, resolving ambiguities in the language of statutes, that’s a core competency of the courts, not of the agencies and executive branch. And so, the Court held the APA does not require the courts to defer to agencies in their resolution of legal questions. On the other hand, clearly the APA does require courts to defer to agencies in their findings of fact—that’s what the APA says—and so, the Court characterized its decision in Loper Bright as actually going back to the language of the APA and these fundamental doctrines of separation of powers.
Now, what did the Court supplant in place of Chevron? It said, “Really, this is not a huge change. It’s just placing courts at the center of this fundamental judicial task of deciding what the ‘best’ meaning of statutes is, and that they should apply these traditional tools of statutory construction.” Recall I said that in many cases, including that Medicare reimbursement rule case, the Supreme Court itself had been doing that more and more in recent years, but I think in lower courts that still felt themselves bound by Chevron, they were still more inclined to defer to agencies. The Supreme Court’s decision in Loper Bright doesn’t mean the agency determinations are irrelevant—they can still be persuasive to the extent that the agency’s construction of the statute depends upon their familiarity with the broader statutory scheme or with the regulated agency, but they’re not entitled to deference. In essence, if there’s an ambiguity, it’s not an implicit delegation of authority to the agency to resolve that ambiguity. On the other hand, where there are expressed delegations of authority, the court’s job is to fix the boundaries of that delegation and ensure that the agency is engaging in reasoned decision-making within those boundaries. I think the Court’s view is that statutory interpretation is not policymaking—again, going back and really disagreeing with the fundamental premise of Justice Scalia’s decision in Chevron. And so, I think they rejected the notion that somehow the courts would have been overstepping their bound to engage in that statutory construction.
Notably, the dissent in this case, which was written by Justice Kagan, joined in by Justices Sotomayor and Jackson, was a pretty strenuous one. She noted that Chevron had been the framework for courts’ resolution of disputes about the meaning of statutes for over 40 years. She noted that Congress, agencies and parties had all relied on this—Congress in the way that it has written statutes, agencies in how they had construed those statutes and issued regulations—and suggested that Congress might have written statutes very differently if they had not believed that Chevron would govern how those statutes would be interpreted and applied under the APA. I think she challenged that Congress would not have wanted the courts necessarily to decide some of these questions, given that they turn on special competence or expertise—Congress would have preferred the agencies to do so—and really ascribed to the Court majority that it was gathering this power into itself and taking it from agencies.
She was focused, I think, more than the majority, on some of the highly “scientific” and “technical” decisions that agencies need to make and their greater expertise in that area. She gave a number of examples of statutes where she thought that the courts would be in a poor position to necessarily fill the gaps—that they’re important gaps that there are in statutes—and several of those were ones that touched the life sciences/health care industries. She cited the Public Health Service Act, the Food, Drug, and Cosmetic Act (FDCA), and how FDA is authorized to regulate biological products and proteins. She, I think, highlighted that there will be many issues that will arise in those areas where the courts won’t necessarily be particularly well-positioned to resolve ambiguities.
Greg Levine: Thanks, Doug. Then, just days after the ruling in these cases, Loper Bright and Relentless, the Supreme Court came down with another case that’s not directly related but may have some relevance to the topic that we’re addressing today of challenging agency actions, and that’s the Corner Post case. Beth, can you talk about what happened in Corner Post and why we think it might be important?
Beth Weinman: Everybody has been talking about the reversal of Chevron and Loper Bright and what the implications of that are going to be, but I think that there are many lawyers out there who actually think that Corner Post could be of even more significance. Corner Post v. Board of Governors of the Federal Reserve is a decision in which the Supreme Court basically changed their understanding of what the statute of limitations will be in an APA case. Before the decision, the APA’s six-year statute of limitations was generally understood as beginning to run on the date of any final agency action. So, if a regulation was promulgated, the statute of limitations would begin to run on the date of the rule promulgation, regardless of when a plaintiff might have been injured by that action. But in Corner Post, the Supreme Court held that actually the statute of limitations only begins to run when a plaintiff is first harmed by that agency action. This means that regulations that have been published long ago—much more than six years ago—may once again be susceptible to legal challenge if a plaintiff is just recently harmed by that regulation. And so, in this new era now, where agencies lack the support of Chevron deference, they also may be facing more challenges than ever because of the change in the statute of limitations for APA actions.
Now, the government may have a few arguments it can make in defense of older regulations. For example, for a very old regulation, the government may argue that Congress effectively ratified the regulation by amending the statute without affecting a challenged regulation if amendments are passed in that time period. But we are, I think, going to see many more challenges in the aftermath of Corner Post that we would not have expected to see.
Greg Levine: Thank you, Beth. Now, we’re already seeing challenges in the courts where the issues of agency deference are being raised. Can you talk to us about, in the FDA area or the life sciences area, what some of those cases are?
Beth Weinman: It’s interesting—just a few weeks ago, we saw a case filed that seemed to take a play from the dissent in Loper. In particular, Eli Lilly filed a case in early September in which the company challenged the agency’s definition of “protein” under the Public Health Service Act—again, that was one of the issues that the dissent suggested might be better left to an agency to decide, rather than a court. Yet, the company’s challenging what features an amino acid polymer sequence has to have to be considered a “protein” under an agency regulation, and thus, allowing it to be regulated as a biologic as opposed to a drug. So, that’s one recent challenge.
Several companies have sued FDA before Loper and after in disputes related to exclusivity determinations. To highlight just one, Jazz Pharmaceuticals v. Becerra involves Jazz’s narcolepsy drug, which was granted orphan drug exclusivity. The statute says that such exclusivity bars approvals “for the same drug for the same disease or condition” for seven years. The FDA approved a competitor product with the same active moiety, but with a different dosing regimen during the seven-year exclusivity window—and Jazz argued and filed suit that this was improper and disputed how FDA interpreted the statutory term “same drug.” So, that case is now pending.
In addition, two associations—the American Clinical Laboratory Association and the Association for Medical Pathology—have filed separate lawsuits challenging FDA’s recent rule on laboratory developed tests (LDTs). Under this LDT rule, FDA announced that it intended to interpret FDA’s definition of “medical device” to encompass these tests. The laboratory industry essentially, for years, has been saying that these tests don’t fall within the definition of a “medical device.” Over the past many years, FDA has exercised enforcement discretion in this space, but ended that in effect by passing the LDT rule, which said very clearly that LDTs fall within the definition of a medical device.
Greg Levine: In that case, one of the main arguments is the major questions doctrine, which is an argument that already would have had quite a bit of force, even absent Loper Bright. I think the FDA actually has some serious issues to face in that case, if not the others as well.
Beth Weinman: Yes, and there was a thought that maybe Congress would speak to this issue in the VALID Act—and, of course, that wasn’t passed.
Greg Levine: Right, which is one of the arguments that the plaintiffs make in the case, that this Congress has been looking at this, and so far, has chosen not to grant FDA authority to regulate LDTs. So, that is one of their arguments that they make.
Doug, why don’t we turn now to talk about what we think the implications of Loper Bright are likely to be.
Doug Hallward-Driemeier: Listening to this discussion that you and Beth have been having, I think, is instructive. On the one hand, I think most of us thought of overruling of Chevron as making a more level playing field—and indeed, I do think that in many areas, the agencies were given a lot of deference. I certainly told clients who were thinking of challenging agency action that if I felt they had a strong position, that it was probably true that the position would get stronger as we got higher in the levels of courts, because district courts often tended to be much more deferential to agencies than courts of appeals, and then, courts of appeals more deferential than the Supreme Court. So, with Chevron gone, I think the district courts as well are going to have to take a fresh look and really give full hearing to the arguments that we want to make—in that sense, the playing field is more level. On the other hand, just as you were describing, there were already tools that the courts had available to them, and in the major questions doctrine, maybe even a tool that tilts the playing field away from the agencies in the sense that courts that are more skeptical of agency exercise of authority can say, “That’s a significant issue that we would expect Congress to have spoken to more clearly if it was going to give you that power.”
I do think that there are some strong arguments for parties who want to challenge agency action now and I expect that we will see a significant increase in litigation. But that said, I think that there are other ways in which we may just be heading toward a new equilibrium. For example, I think that a lot of the questions that we may have thought about as Chevron questions aren’t even technically Chevron questions. They may really be questions about the meaning of agency regulations—that has always been governed by a different doctrine—and even recently, was reaffirmed, including in a decision which the chief justice joined who said, “There’s more reason to refer to agency’s construction of their own rules than there is on their construction of statutes.” So, that won’t necessarily change very much. I also expect that we will find that in areas of really highly technical detail, that the courts will be more inclined to—maybe they won’t call it “defer”—consider and give weight to the views of the agencies in construing statutory provisions.
Greg Levine: That first case that you mentioned, that’s Kisor v. Wilkie?
Doug Hallward-Driemeier: That’s right. There, the chief justice said—this was pre-Loper Bright—that he might well vote to overrule Chevron, but he indicated that he thought that the analysis was different with respect to agencies’ construction of their own regulations. Personally, I think that that’s right because agencies are the authors of their own regulations, and so, they would be expected to have some greater expertise in that. But where agencies are using “construction” of their regulations really to impose new legal standards, that raises the same kind of question of retroactive lawmaking that Chevron did back when we were talking about Brand X. Is there any law when the agency can just change its position and say, “That’s what that law has meant that Congress enacted years ago”? Where the agency’s construction of its regulations seems to be really newfound and a new exercise of authority, I think the courts are still going to call them on that, because I think that raises the same concern that the Court was attempting to address in Loper Bright.
Beth Weinman: Now, in the aftermath of Loper and Corner Post, in order to be able to get Auer deference, agencies are going to have to be able to establish that they had the authority in the first place to promulgate the regulations at issue.
Doug Hallward-Driemeier: Exactly.
Greg Levine: For our listeners, what’s Auer deference, Beth?
Beth Weinman: That’s just referring back to that Kisor case that you and Doug were talking about. That’s the case that affirmed deference to agencies’ interpretations of their own regulations.
Greg Levine: For our life sciences clients that might be thinking about bringing a challenge to an agency action, such as an FDA action—we might refer to it as a Loper Bright action, if it’s a challenge to a regulation that the agency has promulgated—why don’t we talk a bit about what some of the considerations might be. Now, one consideration, if you’re an entity that’s regulated by the FDA, which is going to be your primary regulator, you’re always going to worry first of all about suing your primary regulator and what that might do to your reputation or standing with the agency. Leaving that issue aside, if we focus just on the merits of what these challenges might look like, Doug, what do you need to think about as far as whether you might have a successful challenge to bring?
Doug Hallward-Driemeier: I think the first question really is: How clearly did Congress speak to the precise question at issue? That sometimes is a question of what level of generality is the right level to ask that question. The clearer Congress’s language, the harder a challenge is going to be, but it may still be worthwhile to bring a challenge to the agency’s construction-specific provisions or its application to a specific context as being unsupported. These questions, I think, require you to look at the statute in its entirety, to look at the statute in light of what contrasts or similarities there may be with other statutory provisions. These are all the tools of statutory construction that at least in theory were available at step one of Chevron all along, but, I think, a lot of courts had gotten lazy about it. That kind of analysis would be really very strong to determine whether to bring a challenge.
The other question that I think you want to think about is: Is there an argument that somehow this issue presents—what’s called the major questions doctrine—a significant question of public policy that we could argue Congress would be expected to have legislated more clearly about if they had intended to give the agency this authority? In the first instance, just how significant is this aspect of the economy, aspect of social issues, that might be subject to debate? But also, a question of how long has the statute been around before the agency is purporting to find this authority hidden somewhere in the language of the statute? That is something that we’ve seen invoked, for example, when the FDA was trying to regulate tobacco under a statute that had been around for decades and decades, and no one had ever thought that it authorized FDA to regulate tobacco. So, that’s a question that we want to add: How explicit is the statute or how explicit would we think Congress would have been if it had wanted to grant that authority?
If there are strong arguments that Congress would have spoken more clearly or that the language that Congress used is better construed not to permit what the agency has done, I think, then the question is: Is it something that’s worth the while? How big an impact would it be on the business? If we’re successful, is it something that the agency would be able to just limit it to its fact or would it really change the regulatory environment that the company is operating under? That’s ultimately a cost-benefit analysis.
I think there are absolutely some regulations—we’ve been speaking with clients about this already—that they just chafe under, and they feel like, “If we were freed from this regulation, this limitation, it could really take the top off of our business.” I think those are the areas where we’re going to see parties be willing to perhaps suffer that reputational relationship hit and be willing to undertake the cost and time of bringing a challenge, because it can really change how the company does business.
Greg Levine: Doug, one of the things you mentioned is that if an issue is of more technical nature, courts might be more likely to give some degree of respect to the agency’s view—less likely to overturn an agency’s interpretation of its authority on a given issue. But in the opinion, the Court, if I recall correctly, said courts are called on to address technical issues all the time, and in doing so, they have the benefit of outside experts who can come in and educate the court in the area of their expertise, but the court can still exercise judgment. Is that not right? Or if it is, then how do we think about this issue? Where is this line drawn, where something might be, let’s say, too technical for a court to want to intervene with its own thoughts?
Doug Hallward-Driemeier: I would give the example of the challenge to Mifepristone over the last year. Ultimately, the Supreme Court threw that challenge out because the challengers lacked any injury, any standing to bring a challenge to the ways in which FDA was changing the regulation of Mifepristone. But even apart from that, I think many were concerned that the district court there was going off and doing its own scientific research and claiming that there were questions based on things that the judge had found in an internet search, when in fact, the agency had been conducting a very rigorous analysis of data collected over years about the prescribing and use of a drug, which is what FDA has been charged by Congress to do. I think that there’s a real difference between a question, say, in the case going back a ways, when Attorney General Ashcroft reported that he was going to revoke doctors’ licenses under the Controlled Substances Act if they were participating in Oregon’s physician-assisted suicide program, the court said, “Attorney General, you’re getting out of your skis. That’s something that we would assume Congress would have spoken more clearly about if they were going to give that authority to the federal government. And if they did, we would have thought they would have given that authority to somebody with medical expertise.” That’s the opposite end of the spectrum. In the Food, Drug, and Cosmetic Act, clearly Congress has allocated to FDA the responsibility to determine whether drugs are safe and effective and what the conditions are for their safe and effective use, and that’s the area where I think the courts should be deferring to agency expertise.
Greg Levine: Thanks, very helpful. Final question, Beth. You spent more than seven years, I believe, as an enforcement litigator inside FDA’s Office of Chief Counsel. The Loper Bright, Relentless and then the Corner Post decision, how do you think they’re being perceived within FDA? Do you think that they will have any effect on how the agency is acting, either in its day-to-day interactions with regulated entities or at a minimum in its litigation decisions?
Beth Weinman: I think people saw Loper Bright coming for a long time already. When I first got to FDA, I think it was reflexive that the agency thought it would be entitled to Chevron deference, and courts would automatically side with it in many cases. By the time I left FDA, I don’t think that was really the case anymore. So, I don’t think the loss of Chevron is a big surprise to anyone. I think the agency’s already been starting to deal with this for years—it just has to be more persuasive. The agency, I think, recognizes that when it makes decisions and when it promulgates rules, it has to be focused on what authority it has and on what Congress intended when it enacted the FDCA, and the agency just has to be more careful and its arguments have to be more persuasive. Corner Post, I’m not sure anybody saw that coming, and I do think the agency feels right now like it’s going to be inundated with rule challenges that it didn’t expect, and that may be throwing some people off guard.
Greg Levine: Thank you, Beth, and thank you, Doug. It’s still early days and we’re going to see how these things play out, and it’s going to be very interesting, I think, to work with our clients on determining when, how and whether to challenge actions by the FDA or by other agencies.
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