B. Loper Bright
Overview
On June 28, 2024, the Supreme Court issued its decision in Loper Bright, expressly overruling the “Chevron doctrine” – the doctrine that courts should defer to an agency’s interpretation of ambiguous statutory language which was initially articulated in the Court’s decision in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. Pursuant to the Chevron doctrine, a court would apply a two-step analysis when interpreting a statute that is administered by a federal agency. First, the court would determine whether statute is clear with respect to the language to be interpreted, and if so, the court would apply the clear meaning of the statute. Second, if the court determines that the statutory language is not clear with respect to the interpretative question – either because the statute is ambiguous or silent – then the court must defer to the agency’s interpretation of the statutory language, so long as it is “based on a permissible construction of the statute.” In Loper Bright, the Court held that the deference required under the Chevron doctrine is inconsistent with the requirements of the Administrative Procedure Act (“APA”), which provides that the courts, not federal agencies, will decide “all relevant questions of law.” The Court found that any delegation of a court’s independent judgment to a federal agency is incompatible with this provision of the APA.
Discussion
While the full implications of Loper Bright will not be known for some time, the Court’s opinion includes some key takeaways with respect to the roles of the courts and federal agencies with regarding the interpretation and application of federal statutes going forward.
Prior Chevron Doctrine Cases
The Court expressly noted that it was not overruling or otherwise calling into question any prior opinions that were based on application of the Chevron doctrine framework, and went on to say that those cases remain good precedent notwithstanding the Court’s shift away from that framework. The Court did further note, however, that reliance on the Chevron doctrine framework could support an argument that a precedent was wrongly decided.
Skidmore Deference
Although the Court rejected a framework requiring court deference to an agency’s interpretation of a statute, the Court noted that agencies may continue to have a role in court’s determination of the meaning of a statute. Citing its precedent Skidmore v. Swift & Co., the Court recognized that when a court applies its independent judgment interpreting a statute, “the court will go about its task with the agency’s body of experience and informed judgment, among other information, at its disposal.” The Court went on to explain that with respect to interpretive matters, agencies had the “power to persuade,” but not the “power to control” a court’s interpretation of a statute.
Congressional Delegation
The Court recognized that some statutes expressly delegate authority to the agency that will administer the statute, noting that Congress may rely on an agency “to fill up the details of a statutory scheme” or to provide flexibility to agencies by using terms such as “appropriate” or “reasonable.” In these circumstances, a court’s role is to interpret the statute to determine the boundaries of the authority that has been delegated to the agency by Congress, “and ensuring the agency has engaged in reasoned decisionmaking within those boundaries.”
Corner Post
Less than a week following the Court’s decision in Loper Bright, the Court decided Corner Post, a case addressing when a plaintiff’s APA claim accrues regarding a final agency action for purposes of the statute of limitations. Under Corner Post, unless otherwise specified in a statute, a plaintiff’s claim accrues (and the statute of limitations with respect to such a claim runs from) when the plaintiff suffers an injury resulting from a final agency action, and not when the agency action becomes final. The Court’s reasoning was that because a plaintiff is required to show at the outset of a case that it has been injured by agency action, a plaintiff cannot bring an APA claim unless and until it suffers an injury. This decision reversed the position of several Circuits that the statute of limitations for “facial” challenges under the APA begins to run on the date of final agency action, without regard for when a plaintiff suffers an injury.
Observations
- Loper Bright seems likely to increase the number of challenges to agency action, and when coupled with Corner Post, these challenges could continue indefinitely as new participants enter the market. Will this result in agencies taking less aggressive action? Will Congress address this by providing more express discretion and authority in statutes?
- What concerns does this raise for companies that rely on expansive new regulations, such as the regulations promulgated under the Inflation Reduction Act? Consider whether participants in transactions will need to address how to allocate the potentially increased risk that a court may disagree with an agency interpretation.
- In highly technical, fact specific determinations, consider whether the persuasive effect of Skidmore deference may lead to the same result as under Chevron deference.
C. Osage Wind
Overview
On December 20, 2023, U.S. Court of International Trade Judge Jennifer Choe-Groves, sitting by designation in the U.S. District Court for the Northern District of Oklahoma, issued a decision ordering permanent injunctive relief to the plaintiffs Osage Minerals Council and the United States of America (collectively, “OMC”) against defendant Osage Wind, LLC, Enel Kansas, LLC and Enel Green Power North America, Inc. (collectively, “Defendants”), which requires the removal of an 84-tubine wind farm from Osage Nation land. In addition, the decision ordered a damages trial to be held with respect to the amount of monetary damages due to OMC from the Defendants.
Discussion
The court’s decision followed more than ten years of legal proceedings between OMC and the Defendant’s relating to the Defendant’s commercial windfarm located in Osage County, Oklahoma, on Osage Nation land. Through the course of these proceedings, it was determined that (i) the Defendant’s excavation of rocks from the site, together with the crushing of the rocks for use in the foundations of the wind turbines and using them in the foundations constituted “mining” and “mineral development” withing the meaning of applicable federal law; and (ii) the Defendant had not secured a necessary lease from the owners of the mineral estate (“OMC”) to permit mining and mineral development at the site. In Osage Wind, the court found that OMC was entitled to monetary damages resulting from Defendants’ trespass and conversion and equitable relief for the continuing trespass resulting from Defendants’ continued use of the crushed rocks in the foundations of the wind turbines, in the form of ejectment – the removal of the wind turbines from the site. The court noted that OMC and the Defendants disagreed as to the appropriate measure of damages, with a damages figure proposed by OMC of approximately $26 million, and a damages figure proposed by Defendants of between $69,000 and $248,000. As a result, the court ordered a trial to be held on the issue of damages.
On May 20, 2024, the court commenced the damages trial with respect to the monetary damages award, and closing arguments were heard on July 9, 2024. Since that time, the parties have reported in court filings that negotiations as to a potential damages agreement have not been fruitful. A verdict has not yet been issued by the court with respect to damages.
Observations
- Osage Wind underscores the need for a thorough diligence process, including involving practitioners in specialized areas of law when applicable.
- Consider whether this case has broader implications for any type of infrastructure development – including solar farms and electric transmission - in areas where mineral interests are common.
- While rare, developers and asset owners should keep in mind that removal of an asset is a potential outcome if there is a defect in the permitting, licensing or other rights necessary to develop the asset.
D. Final HSR Rules
Overview
On October 10, 2024, the FTC issued the Final HSR Rules, which govern the premerger notification filing process. This was the first major update to the Hart-Scott-Rodino (HSR) filing form, and will have a significant impact on the premerger notification process. Although the Final HSR Rules scale back certain aspects of the draft rules that were proposed in 2023, they still substantially increase the burdens on filing parties as compared to the existing rules. The Final HSR Rules will become effective in mid-January 2025 - 90 days after publication in Federal Register.
Discussion
As a general matter the Final HSR Rules will increase the amount of information, data and documentation that will be required to be filed as part of the initial filing, which in turn will make the filing more time consuming to prepare and submit. Additional analysis will be required by the parties up front, since written narratives describing the transaction rationale, any competitive overlaps, and/or vertical relationships will need to be included with the initial filing.
Additional Narrative Disclosure
The Final HSR Rules require the filing persons to provide a description of each strategic rationale considered for the transaction, and to note which documents in the HSR submission support the stated rationale or rationales. The filing persons must also provide a description of their business lines, and current and prospective horizontal overlaps and supply arrangements between the filing parties. Detailed information regarding overlapping products and services, and supply relationships, is required as part of this description.
Additional Documents
The filing persons must submit certain ordinary course planning and strategic documents, as well as additional documents relating to the transaction that is the subject of the filing. Recent reports to the CEO or Board that analyze market share, competitors, competition or markets with respect to any current or prospective overlapping products or services are now required to be submitted. In addition, transaction related documents that were prepared by or for a supervisory deal team lead must also now be submitted, in addition to those prepared by or for an officer or director.
Additional Information
The Final HSR Rules also require additional information to be provided by an HSR filer with respect to the following:
- Other industry activities of officers and directors;
- Prior acquisitions;
- Minority interest holders;
- Defense and intelligence community contracts; and
- Foreign subsidies.
Observations
- Companies that regularly engage in M&A transactions or are planning an M&A transaction should review their document creation and document retention policies and practices to ensure that they will be able to comply with the new rules. Preparation of strategic reviews involving competitive analysis, whether or not in the context of a transaction, should be prepared thoughtfully, in light of the new submission requirements.
- Companies should budget additional time for preparation and submission of an HSR filing. Given the additional disclosure and submission requirements, companies should consider starting preparation of the filing even before definitive agreements are signed, and may want to expand their due diligence review to include information that is required under the new rules.
- Given the new requirements regarding disclosure of defense and intelligence community contracts and foreign subsidies, consider how these disclosures may interact with a party’s obligation to make a filing with CFIUS regarding a transaction.
