Introduction

In June 2024, the U.S. Supreme Court made a historic ruling that overturned the Chevron deference, a judicial precedent established in the 1984 case of Chevron v. Natural Resources Defense Council. This precedent had long guided courts in deferring to federal agencies' interpretations of ambiguous laws, significantly influencing how regulations were enforced across various sectors. The new ruling in Loper Bright Enterprises v. Raimondo and Relentless Inc. v. Department of Commerce marks a major shift in the balance of power between federal agencies and the judiciary, with far-reaching implications, particularly for the Securities and Exchange Commission (SEC).

Chevron Deference: A Brief Overview

The Chevron deference emerged from the 1984 Supreme Court decision in Chevron v. Natural Resources Defense Council. Under this doctrine, when a statute was ambiguous, courts were required to defer to a federal agency's interpretation of the law as long as that interpretation was reasonable. This principle provided agencies with significant latitude in rulemaking and enforcement, allowing them to adapt regulations to changing circumstances within their areas of expertise.

The Supreme Court's Decision in Loper and Its Rationale

In Loper Bright Enterprises v. Raimondo and Relentless Inc. v. Department of Commerce, the Supreme Court overruled the Chevron deference, arguing that it improperly shifted the balance of power away from the judiciary. The Court emphasized that deferring to federal agencies on matters of statutory interpretation deprived courts of their independent judgment, contrary to the principles outlined in the Administrative Procedure Act (APA).

While the ruling eliminates the broad application of Chevron, it does not entirely preclude deference to agencies. The Court clarified that agencies might still receive deference when a statute explicitly grants them interpretive authority or when the matter involves fact-finding rather than legal analysis.

Implications for the SEC

The overturning of Chevron could significantly impact the SEC's regulatory agenda and enforcement actions. The SEC has been at the forefront of enacting and enforcing controversial rules, such as those related to climate disclosures, which have faced numerous legal challenges. Plaintiffs in these challenges may now find themselves on stronger footing, as courts will no longer automatically defer to the SEC's interpretation of ambiguous statutes.

Additionally, the SEC’s interpretation of the term “dealer” under securities law could face renewed scrutiny. The agency’s broad interpretation, which has included small-cap investors engaged in convertible note transactions, has been upheld partly due to the Chevron deference. With the Loper decision, courts may adopt a different approach, potentially narrowing the scope of who qualifies as a dealer under the law.

Conclusion

The Supreme Court's decision to overturn the Chevron deference in Loper Bright Enterprises v. Raimondo represents a significant shift in administrative law. While it remains to be seen how this ruling will play out in specific cases, it is clear that federal agencies, including the SEC, will face new challenges in defending their rulemaking and enforcement actions. Entities regulated by the SEC should be prepared for a legal landscape where agency interpretations are subject to greater judicial scrutiny.