Chevron Doctrine’s Demise and Industry Risk

Over a month before that ruling, my Bloomberg Intelligence colleagues Elliott Stein, Justin Toreesie, Dwayne Wright and I put out a detailed report anticipating the ruling and explaining the larger demise of deference to regulators. And then days after the ruling, on July second, we held this call to discuss our report and to explain what this critical legal development means

for industries and businesses. Please enjoy. Okay, good afternoon, everyone, and welcome to the Bloomberg Intelligence webinar the demise of the Chevron Doctrine. A couple housekeeping notes before we begin. Today's presentation will be recorded and available for playback. You can ask a question to us by submitting one in the Q and a box you see at the bottom of your screen, and after the webinar, we're all available to answer further questions on this topic. A brief note

about Bloomberg Intelligence. BI Research delivers independent perspective, interactive data and investment research on companies, industries, and global markets. Our team of three hundred and fifty professionals helps our clients make informed decisions. We cover companies, industries, markets from the perspective of strategy, equity, credit, ESG, government, and litigation. My

name is at Shuttinghelm. I'm a litigation and policy analyst with Bloomberg Intelligence focused on the TMT sector, and I'm joined today by my fellow Bloomberg Intelligence analyst, Dwayne Wright, who's focused on healthcare, and Justin TREESI focused on industrials and antitrust. Unfortunately, Elliott Stein isn't able to join us today due to a death in his family, but he shared some thoughts on the impacts on the financial sector

and we'll get to that in a little bit. Dwayne, do you want to tell us more about the deep dive report we did.

it's not intended to be a comprehensive report. There are fifty three titles of US Code, there's dozen of different federal regulatory agencies in Washington, d C. So obviously impossible to really get to the far reaches of where Chevron the impact of the Chevron demise is really going to touch. But we each bring expertise in some specific areas to the conversation, and with that we really want to highlight how the development impacts those areas that we know best.

So let's get into it. Matt, if you could give us an overview of what we're talking about and why any of this really matters going forward from this point.

It doesn't answer all the questions about what federal law applies to or how far it reaches, and so for forty years, the Chevron doctrine has explained how those gaps it filled, how those questions in federal law get answered, And the doctrine says it's the regulators themselves, the SEC, the FDA, the FCC who get to fill those gaps, who to get to determine how far far federal law reaches.

And of course, virtually every time a federal agency does that it expands or contracts federal law, they get sued. And Chevron is the test that applies in courts when judges look at did the agency do this properly? And in those lawsuits, the Chevron doctrine has said that as long as the regulator's view of the federal law passes a very light touch, reasonable test, the court must accept it. And that's true even if the court itself thinks it has a better view of the law. The idea here

is that judges aren't experts in this stuff. The regulators are. So there's always been a check from the courts on agencies. It's always been very light touch, very deferential. The regulators themselves get great discretion to interpret federal law by making policy calls that are specific to the areas that they know based on their expertise.

quietly disappearing slowly over the last decade. Number two, In a twenty twenty two case involving the EPA, the Supreme Court announced what's known as the Major Questions doctrine, and in a nutshell, the Court said that anytime a regulator tries to answer a major question about what federal law means, it can't do so unless Congress granted it that power clearly. In other words, only Congress can answer the major questions

about federal law. The regulators themselves can't. And then the third step came at the end of last week, the Loper Right decision. After that twenty twenty two EPA Major Questions decision, no one really knew which questions were major and which ones weren't. And in theory, agencies still got deference on the non major ones and so but the loper Right decision kills everything. It's no longer there's no longer a situation where courts must defer to the regulatory

agency even on non major questions. The courts themselves get to decide how far federal law reaches. The regulators don't, and they can try to persuade the courts, but it's the courts, and ultimately the courts are guided by the US Supreme Court that will determine what federal law means. And the US Supreme Court, of course is very business friendly friendly, very skeptical of aggressive regulation.

expand regulate regulator's power. And so in my view, this development will be very good news for many industries that prefer an environment of light touch federal regulation.

cited neither Chevron nor the Major Questions doctrine. Instead, the Court determined that the relevant statutes Dodd Frank and the Investment Advisors Act in that case were clear on their and that the SEC had exceeded its.

We expect many of those challenges to succeed. For example, we expect the CFPB's credit card late fee rule to be struck down in the courts. That rule seeks to cap credit card late fees, which would eliminate about ten billion dollars in fees that quarity card issuers like JP, Morgan,

Bank of America, Capital One, and American Express collect. Indeed, the rule is already put on hold by a federal District court judge in Texas who found compelling the arguments made by the US Chamber of Commerce and other bank trade groups that the CFP had CFP had exceeded its authority under the Dodd Frank and the Credit Card Accountability, Responsibility and Disclosure Act, better known as the Card Act.

We also expect the SEC's climate disclosure rule to be struck down in court, in part due to the major questions doctrine, since there's a strong argument that the rule is a pretext for emissions regulations, which Congress has delegated the EPA, not the SEC. Other lawsuits Elliott's watching concern SEC rules over proxy advisors, short sales, and securities lending, the definition of government securities dealers, and the consolidated Consolidated

Audit trail. Also watching lawsuits challenging CFPB rules over small business lending and the agency's examination manual, and a lawsuit against the fbiic FED and OCC over changes to the Community Reinvestment Act. And finally, we think this trend of court's deferring less to federal regulators will help coinbase and other crypto companies in their defenses against see enforcement actions. These cases concern the meeting of the term investment contract

in the federal securities laws. We expect the issue to eventually reach the Supreme Court, which we anticipate will revisit its seminal how we decision and narrow the Howie test in a way that is favorable to coinbase so that secondary transactions of digital assets are less likely to be deemed securities that fall under the purview of the SEC. If you would like to discuss any of these cases and in more detail, please don't hesitate to reach out to Elliott.

of that litigation. When the Obama era FCC restored federal broadband regulation, it only won in court because of Chevron deference. The courts had to defer to the FCC. It's just not going to happen anymore. And in the second quarter of this year, the Biden era FCC tried to restore again aggressive federal broadband regulation under the Communications Act. And the case is now in the Sixth Circuit Court of Appeals. And although the FCC won the last round of this litigation,

it's going to lose this one. It won't win this, I don't think without deference, and so the result is very likely going to be no or minimal regulation of these companies most important product at the federal level. How

about Internet regulation, Yeah, that's in trouble too. So Congress has struggled to reach consensus on a data privacy build that goes after Google and Meta's data privacy practices, and so the Federal Trade Commission has started a process to make rules that would regulate the digital ad business what's really at the heart of their business model? And FTC chair Lena Kahan has she calls it surveillance advertising, and has, you know, threatened to propose pretty aggressive rules using the

FTC's power over unfair or deceptive practices. So her idea is to expand that term in federal law unfair deceptive to take aim at the digital ad business model. And again here what we can say is that effort is likely to run directly into this regulatory wall. So if the FDC is aggressive with its digital ad regulations, which I think it planned to be, at least, the courts are almost certain to strike that down definitely.

going to strike that down. In fact, we could see a stay of that non compete clause UH decision this week. Any industry impacted by that sort of rule making, or any M and A impacted by unfair competition rules that that the FDC might try to develop, that they're going to escape that sort of regulation. In my view, the FDC is picking about the worst possible time to try to expand its rulemaking powers in novel ways.

and chevron deference here, the first being both relate to p fas or forever chemicals, as they're being referred to right now and kind of the mainstream media, if you will. Long story short, p fast chemicals come with particularly unpleasant health effects for humans when they build up in the human body, right So we're talking about the particular cancers, hormonal issues, things like that. But with kind of that

as the base for moving forward. This spring, the EPA finalize a rule that have under the Safe Drinking Water Act that involves tapping the level of allowable p fas

in people's drinking water. So authorities nationwide now have to measure and remediate for the presence of p fas and drinking water that are beyond a particular allowable limit under the final rule, what they also did when they promulgated that regulation is they issued something called the hazard Index, And what they did is they required authorities to not only measure for particular substances, but also mixtures of those

substances in drinking water. So that's the first kind of rule that came out in April, and something for us to note here. The second involves the designation of p FAS chemicals, two of them anyway, as hazardous substances under the CIRCLA or what's better known to folks as a super fun law, opening the door to kind of designating physical sites for cleanup and remediation efforts if those particular p FAS chemicals are present in those sites at a

particularly unpleasant amount. So what's important here is the billions of dollars involved with both of these rules that are anticipated in terms in the order for responsible parties to

become compliant with both of them. And you know, both have their wrinkles here with regard to Chevron, and we'll get into that a bit later, but you know, particularly interesting wrinkle with the way the EPA operates too, is that on the one hand, here you have the folks who made these chemicals in the first place, the three m's, two ponds and Camors of the world, who you know, might see a shift in liabilities for any of these cleanup efforts because of any changes here now under the

Chevron deference. And again this applies to all areas of e p A regulation. But on the other side of the coin, there is this whole green economy and companies that stand a benefit from things like remediation costs and and you know, putting out you know, green technologies, you know green a whole wide range of spaces, which we'll

talk about too. So so there is this kind of before and after effect here with with with these e p A regulations and will industries you know, traditionally might benefit from a roll back of Chevron, there's also the possibility that they could be in some way harmed by that, depending on what the nature of their business is over at e PA.

take public comments. It's a bit in relation to the rules into account and the way that they were supposed to. How Chevron kind of enters the fray here is that you know, well, you know, it's not questionable really, and it's well settled that things like capping the level of substances and drinking water is good law and something that

EPA has the authority to do. You'll look kind of zone in a little bit, a little bit zooming a little further on that particular rule, and you look at their use of this hazard in dex I mentioned whether they're requiring from measuring mixtures of chemicals. Well, the statute doesn't address this question of mixtures, So did EPA in some way it surpass its authority when it decided to

do that. And from the standpoint of the Superfund law, EPA is looking to other statutes and how substances were designated under other statutes, But it remains the case that as far as their actual Superfund law is concerned, this is the very first time the APA has actually designated new hazardous substances under that loss. There's not this existing case law that already exists out there, kind of discussing what the authority is to do that under the law itself.

So where there's some ambiguity where Chevron deference might have been helpful in the past, now it's not there to really protect them.

But there's no question that even the administration referred to both of these these rules as historic and historic because it really is the first time that a lot of this action was taken with regard to forever chemicals, and especially in the case of the super fun laws. So this is something to really take into account here from the standpoint of deference. You know, I think EPA did

what it could. But also an important wrinkle to kind of mention here too is that, you know, for whatever reason, if you know, I'm sure this is true for other agencies as well, but forever whatever reason, if these rules didn't go forward, you know, this is opening the door to a situation where we see things like states continuing

that march forward. Before this this drinking cap or drinking water cap was finalized by e PA, for example, ten states already had a similar cap in place through through their own regulatory scheme. So keeping that in mind too, there's this all the other wrinkle here, where in the absence of federal federal regulation or problems you might see from Chevron decline, stay are kind of stepping in here to fill that void in some ways as well, not necessarily on the end of the story.

to come into play. But another really recent rule for ep that I think is also likely to be affected in some ways. Was there the rule on vehicle emissions that rolled out also this spring. This was hotly contested. There's a lot of rhetoric around this. This many most call it a Mandaday would say for two thirds of new vehicles sold in the US to be electric in some capacity by twenty thirty two. So the EPA used the Clean Air Act basically to forward a lot of

that regulation. The questions arise as to well does a cleaningir act really allow the EPA to do things like regular tail pipe emissions or are we talking more about factory emissions and things of the like. So all of that again back on the table. Another big rule that has that kind of bifurcated situation on where you've got traditional automakers on one side who stand to benefit from its demise, but then you've got ev manufacturers on the other who also would be troubled if they were to

fall apart. So there you go.

to lose. You know, courts can still look to the agencies to be persuaded by them, but the ultimate decision maker here is the US Supreme Court on anything significant, and that Supreme Court, we know how it has pretty strong feelings about overreach of agencies, and I think we just keep seeing that in every sector we look to but thank you for that, justin that that's a that's

a nice overview. Last, but not least, Dwayne, I want to bring you into this to to touch on the healthcare side as we look as we think about healthcare policy in this what's the broad theme? Are are there pending policy disputes that could see different outcomes after the Chevron decision last week?

regulatory efforts. And I think what we saw and what the FD had was some consistency and ft oversight where there wouldn't see any second guessing of their decisions, especially since many policy decisions are based on complex science. So it's worth noting that while the business lobby Chamber of Commerce maybe others supported the decision and may have submitted briefs.

We didn't see that from the trades for the life science industry, So I think that's telling of some of the flexibilities they see with with fd For f d A and CMS, you know some specific examples of where there are some pending policy disputes, and we've I've written about these before, and I'll go over a couple now. The first that comes to mind is the regulation of laboratory developed tests. These are a subset of in vitro diagnostics. They were designed and made for use in a single

clinical lab UH. FDA viewed LDTs as low risk UH develop it developed for diagnosing a rare disease or for use in smaller population. The FDA had exercise enforcement discretion over LDTs and didn't require free market review or clearance before use. Yet over time, these LDTs become more complex and have been marketed nationwide even if the test is

run in a single lab. The FDA has for the past excuse me, for the past several years, tried to move in the direction of regulating these LDTs as medical devices. There was a guidance in twenty sixteen ultimately got pulled. This administration has moved forward with rulemaking and recently finalized a rule that would require pre market review and other quality system checks for tests that were marketed after the

final rule. The American Clinical Laboratory Association, which represents the lab cores, the quests, and other labs, has sued the FDA on grounds that it doesn't have the authority to regulate LDTs because they believe their services and they're not explicitly spelled out in the statute. In their view, Congress would have to give them give the FDA the power to regulate them, even though the FDA maintains authority to

do so. Now, what's interesting is given the timeline for implementation with labs have to comply with device reporting beginning May twenty twenty five, So are we looking at a delay in implementation possible. We know that new administration or a Trump administration will probably put the regulation on ice, but if it goes the way of the court system, it seems like they would view FDA authority here with

a bit of skepticism. I'd say the next step is, if you follow this issue, could we see legislation here which spells out FDA authority to regulate these tests and what that authority is maybe regulating them separate from medical devices. I think that it makes that scenario more likely eventually. I don't think it's this year, but that is something

we could see. Another example is a more recent rule on a nurse staffing mandate, which requires nursing homes to have a nurse on duty for a certain number of hours per day beyond what it's already were already have in law right now, and there are some estimates or studies that show only about twenty percent of nursing homes

or nursing facilities would actually be incompliance. So this could be another area where CMS may have overstepped its bounds in terms of mandating certain number of hours where nurses are available. So these are a couple of things to watch, and I could probably come up with several more, but those are just two since they are very recent rules that rely on some kind of flexibility in terms of the FBA thinking or thought process of their authority.

in particular that are very important for drug companies in terms of whether they're drugs, these specific therapy that they have is subject to negotiated pricing or not. And you know whether a generic competitor comes on in the market, either preventing their drug from going on the list or getting it off the list faster. So there's two things we like to focus on that are worth keeping an

eye on as its process unfolds. One is the term single source drug, and then two it's the phrase that is not in statute called bonified modified marketing of a generic or bi similar as I said, bonified is not in the Irish statute and it's a determination of what is or when a generic is made available that prevents the brand drug from being subject to negotiated pricing. CMS

came up with that term. It's something where they will use it on a case by case basis that weighs factors like generic utilization and included in a prescription drug event data. Their point being they want serious competition in the market to pull a drug off the list as opposed to some token or nominal nominal generic marketing. Because the statute just basically says marketing of a generic or

something to that effect, it's very very very loose. The agency also defines a single source drug based on its active ingredient so that it can multi It can group multiple therapies with a different drug or biological license application like Nordisk Novologue and biasp as. It's a diabetes drug, same ingredient, different NDAs, so theoretically different drugs but same ingredient.

CMSs argue that the statute directs it to use data that's aggregated ross susage, forms, and strength of the drug, including new formulations of the drug, and as its basis, we're focusing on the actual ingredient or active moiety drug companies, no surprise would say that that interpretation oversteps the bounds should focus on separate NDAs or blas for negotiation purposes.

So this is one of those things that could have a significant impact down the road on potentially some of these infused drugs that maybe moved to a subcutaneous version where there's the active ingredient and maybe an inactive ingredient that just helps with the absorption absorption of the mate ingredient we're seeing go down that route and some others. The subkey versions might be near the market but could be swept in with older versions for price setting purposes.

Now these are all in guidance. It's it's worth pointing that out. And CMS can basically say from one year to the next, because what it does is released new guidance for every applicable price year, they can pretty much change UH the interpretation of that. And now if it's the same administration, maybe we see the same interpretation review for the next four years. A new administration might have

a different interpretation. But this is one of those things where you might be able to see UH a challenge to this administrative interpretation of pretty important provisions of the IRA.

of how it is applied to the Medicare population. CDs not in statue, and it does limit patient access to FDA approved items and services. It's again it's up to Medicare to determine whether an FDA approved medical device or drug is reasonable and necessary for the Medicare population, whereas

FDA standard is safe and effective. And so as part of that mandate, the agency created cd to give that access to therapies that might have had insufficient evidence while that additional data is collected but that can also mean limiting access to a therapy that's a lot narrower than the approved label, or other restrictions like participating in a

clinical trial or a registry. So, you know, this is a limitation that people talk about because we've seen with some cd s, their CD in perpetuity that never seems to end. Now, CMS would point to maybe their authority is part of some reading of the statute that's just not necessarily explicit in terms of CD but it could be open to interpretation again, or maybe the courts would disagree, you know, So this is one of those things where

we could still see challenges. I wonder if this means, you know, you asked a question about Medicare, but just to touch on FDA, if a lot of what they do is now subject to second guessing, does this mean they need more staff to focus on a lot of these questions of safe and effective or what is or is not a breakthrough when certain thresholds up been met. Do they need more user fee dollars from the drug industry.

Now that's there's the User Fee Authorization Act for Medical Devices Pharma bi Logics, and that is a way to help get industry the regulated industry to help with the process of moving the applications through the review process in a more timely manner. Do we need more of those and does that mean it shows up with the regulated

entities having to pay more for that process. It's quite possible now in terms of Congress, they'll have to write laws with greater specific specificity and less less than the flexibility for agencies. It's worth noting that one member, Senator Cassidy, Republican from Louisiana, he's the ranking member of the Health, Education, Labor, and Pensions Committee. As jurisdiction over the the h part

the health, which is what I focus on. He sent a number of letters to various federal agencies asking how they would enforce laws as Congress writes them in light of the ruling. I'll touch on one of our two of them already touched on one. Actually they specific specifically calls out whether or not i FT has authority to

the ld TS. So that's one area. He brings up this issue of march and authority and the Biden administration's proposal to basically give the or marching authority as a whole allows the government to grant patent licenses to other parties or to take the licenses for themselves for itself and in cases where federal tax dollars helped fund the patent owners R and D. So the Biden administration came up with this framework that said it could do that based on the cost of the drug if there's an

excessive price. The target has always been as it relates to marching on the pharmacide or at least recently ex standy a prostate cancer drug. So that framework of incorporating prices or a drug price into a decision making process, and whether exercise marching is something that Biden administration wants to do, the opponents would say, well, that's not what is allowed under the law. So that's one of those things where we could see the courts less flexible to

the administracious interpretation. So overall, there's a lot to think about in terms of how if G and CMS decision making could be slowed or more technly structured moving forward.

court's expertise. But I think you are going to see the courts not feel compelled to defer even on technical areas where there's really there's potential disruption to business through the regulation, is the way I think about it. So a couple questions in the chat that popped up. First

of all, is the Federal Reserve impacted? I don't know the answer to that directly, and i'd want to ask Elliott and Elliott Stein who's not here, and Nathan Dean, who is on our team as well, So I would recommend taking that question up with them.

and a half to what I said before. So everything about agency rulemaking and the litigation challenging that is slow, and that nothing about the Chevron development this week changes that agencies still.