Supreme Court's EPA decision could put DOL rule-making in crosshairs

The U.S. Supreme Court’s decision June 30 in favor of West Virginia in the state’s lawsuit against the Environmental Protection Agency regarding that agency’s regulatory authority could affect the Department of Labor’s authority in rule-making, some ERISA attorneys agree.

The court’s 6-3 ruling appears to limit the EPA’s ability to regulate the emissions of greenhouse gases to individual power plants rather than more ambitious efforts such as cap-and-trade systems, in which carbon emissions are given a price that would motivate them to invest in cleaner technologies.

The lawsuit had challenged the level of the EPA’s authority to regulate carbon emissions from power plants under the Clean Air Act.

Carol Buckmann, a partner at law firm Cohen & Buckmann PC, said in an email that she thinks today’s decision may impact DOL actions.

She cited that agency’s issuance earlier this year of Compliance Assistance Release 2022-01, a document for 401(k) plan fiduciaries telling them to “exercise extreme care” before selecting cryptocurrency as an investment option in plan menus.

ForUsAll Inc., a 401(k) plan administrator that offers cryptocurrency to participants through a self-directed brokerage window, filed a lawsuit on June 2 against the DOL seeking to vacate that guidance.

“For example, one argument made in that complaint is that the DOL singled out one asset class for special negative treatment even though the Employee Retirement (Income) Security Act doesn’t give the DOL authority to do that. That argument seems stronger today,” Ms. Buckmann said.

“That is the most current example, though other actions, such as the rules governing investment advice relating to rollovers, or other DOL guidance that has potentially broad impact, may also be vulnerable,” she added.

The key question is whether certain regulations fall under the major questions doctrine, which states that administrative agencies must be able to cite “clear congressional authorization” when they make decisions of wide-ranging “economic and political significance.”

Joseph J. Torres, a Chicago-based partner at Jenner & Block LLP and chairman of the firm’s ERISA litigation practice, said in an email that the underpinnings of today’s decision may invite further scrutiny of the DOL.

“Like the EPA, many of the statutes that the DOL looks to for its authority were passed long ago. Thus, as the DOL seeks to regulate certain conduct, today’s decision reminds us that the ‘major questions’ doctrine requires courts to consider whether the regulatory action involves a major policy decision that Congress would be expected to address in the first instance,” Mr. Torres said.

Kevin L. Walsh, Washington-based principal at Groom Law Group, said in a phone interview that the ruling may impact how the DOL will continue its recent emphasis on rule-making based on ERISA Section 404(a) on fiduciary responsibility.

“One might say in light of this new Supreme Court precedent, a duty to act prudently doesn’t give the DOL the authority to craft new substantive responsibilities,” Mr. Walsh said.

Dennis M. Kelleher, co-founder, president and CEO at Washington-based non-profit Better Markets, said in a phone interview that the ruling should not have much impact on the SEC because the agency does ground its rule-making in specific statutory authorizations.

He noted, however, the SEC and other agencies will have to tread more carefully in how they present those rules.

They will have to “make much more explicit what they are proposing to do how clearly and closely their rule-making it tied to statutory authority. They will do it to a greater extent in the future to try and forestall baseless legal challenges.”

Despite that, Mr. Kelleher foresees a greater number of such challenges ahead. Even though the EPA created its emissions rule and cited the Clean Air Act’s statute that empowers the agency to “devise the best system for emissions reduction,” Chief Justice John G. Roberts Jr. said in the opinion that in “certain extraordinary cases” something more than merely plausible textual basis is necessary to support specific regulations, Mr. Kelleher said.

In other words, Mr. Kelleher said, while the EPA followed the major questions doctrine, “that’s not good enough” for the court majority.

“Every corporate securities lawyer representing corporate America is going to tailor their arguments against the SEC rules to the analysis put forth in the EPA case,” Mr. Kelleher said. He added specifically that SEC climate rules will definitely see a significant uptick in the volume of legal challenges ahead.

Andrew L. Oringer, a New York-based partner in the ERISA and executive compensation group at Dechert LLP, said in an email that the specifics of the Supreme Court case could make it so the decision would not be expected to apply for ERISA purposes.

“I do, however, think that the case increasing judicial hostility towards deference to administrative agencies, and Justice Gorsuch’s dissent, not surprisingly, is additional evidence of that,” Mr. Oringer said. “Indeed, the DOL did get caught up in that trend with the Fifth Circuit’s rejection of the amended fiduciary rule in the Chamber of Commerce decision, which was allowed to stand by the Trump administration. But, in terms of specific applicability of the EPA case under ERISA, I suspect that the factual details in the EPA case could make that unlikely. “

New York City Comptroller Brad Lander said in a news release June 30 said the decision “undermines the federal government’s ability to set critical standards for meaningful reductions in our greenhouse gas (GHG) emissions and to provide for a just transition to a low-carbon economy.”

Mr. Lander, the fiduciary for the five pension funds in the $265.9 New York City Retirement Systems, said “We cannot confront the scale of the risks the climate crisis poses to our communities and the global economy without strong, concerted action by both the federal government and the private sector.”