It’s Time to Overrule Chevron

Thomas A. Berry and Isaiah McKinney

Herring fishing is hard work on a crowded boat, but the federal government wants to make it even harder. Every inch of space on a small fishing boat is valuable room for supplies, fishers, and the catch. Space becomes even tighter when the government forces fishers to carry a monitor to track compliance with federal regulations. And profits become even narrower when the fishers are forced to themselves pay that monitor’s salary.

A federal statute lays out three specific circumstances in which the government may force fishers to pay a monitor’s salary. Outside of those three cases, the statute is silent. Yet the government nonetheless took that silence as permission, issuing a rule that forced herring fishers in New England waters to pay for their own monitors. The regulation will cost those herring fishers around $700 per day and reduce their profits by about 20%.

Several fishers sued to challenge this rule, including Loper Bright Enterprises, a family‐​owned fishing company that operates in New England waters. Because they did not fall within any of the three categories mentioned in the statute, they argued that the government did not have the authority to force them to pay their monitors’ salaries. Their challenge reached the D.C. Circuit, which held that the statute was ambiguous on this question of monitor salary. But under a precedent called Chevron v. NRDC (1984), that ambiguity meant the government won.

Now the Supreme Court has taken Loper Bright’s case to consider whether Chevron should be overruled. And Cato, joined by the Committee for Justice, has filed an amicus brief supporting Loper Bright and urging the Court to overrule Chevron.

Chevron sets out a two‐​step process that courts must follow when reviewing an agency’s interpretation of a statute. First, the court must apply the traditional tools of statutory interpretation and determine if the statute has a clear meaning. If the statute is clear, then the court must apply that clear meaning. So far so good. If, however, the statute is “ambiguous,” the court must move to the next step and defer to the agency’s interpretation so long as it is “reasonable.” The court must defer to an agency’s reasonable interpretation even if the court believes that the agency’s interpretation is not the best interpretation.

Chevron thus gives judicial power—the power to interpret the meaning of the law—to the executive branch. The Constitution, however, grants all judicial power to the judicial branch. And Chevron deference applies even when the agency demanding deference is also a party to the case. Chevron thus biases the courts toward government agencies, stripping the judiciary of impartiality and denying litigants basic due process.

In addition to these fundamental problems, our brief gives two further reasons why Chevron must be overruled: it is ahistorical and unworkable. Chevron is ahistorical because courts did not reflexively defer to the executive at the time of the Constitution’s framing or for a hundred years after. The nineteenth‐​century precedents that some have cited to support Chevron were all fundamentally different, such as when courts gave interpretive weight to long‐​held or contemporaneous executive interpretations. It was not until the New Deal era that the Supreme Court began to defer to the executive solely because it was the executive. And it was not until Chevron that deference to the executive became a binding rule for all federal courts.

Further, Chevron is unworkable because courts have failed to find a consistent definition of “ambiguous.” The Supreme Court itself has gone back and forth, sometimes applying all the tools of statutory construction rigorously at the first Chevron step and other times quickly deferring with little statutory analysis. Even as the Supreme Court has declined to defer over the last seven years, lower appellate courts have continued to find statutes ambiguous more than half the time. The failure to reach a consensus on the meaning of “ambiguous” itself demonstrates that Chevron is arbitrary and unworkable.

Loper Bright’s case exemplifies everything wrong with Chevron. The Court now has a perfect opportunity to overrule Chevron and reclaim the judiciary’s independence.

The Supreme Court Strikes Down Home Equity Theft

Thomas A. Berry and Isaiah McKinney

Today, in a unanimous decision, the Supreme Court held that local governments cannot take surplus home equity after liquidating delinquent taxpayers’ property to pay their tax bill. Typically, if a property owner is behind on her property taxes, governments will take the property, liquidate it, and use the funds to pay off the tax bill and any accrued fees. Most states then return any remainder back to the property owner. However, Minnesota and 13 other states maintained a practice of greedily pocketing any surplus equity instead of returning it to the rightful property owner.

That is what happened to 94‐​year‐​old Geraldine Tyler, the plaintiff in Tyler v. Hennepin County. She fell behind on her property taxes, owing $2,700 and another $12,300 in fees. Hennepin County took her property and sold it for $40,000. But instead of returning Ms. Tyler her remaining $25,000, the County took that money for its own use.

The Supreme Court correctly decided that this practice is unconstitutional. Writing for a unanimous Court, Chief Justice John Roberts explained that governments cannot take more property than necessary to satisfy a tax debt.

The crux of this case was whether the $25,000 in equity was in fact Ms. Tyler’s property. The Fifth Amendment prohibits the taking of private property without payment of just compensation, but the Constitution does not define what “private property” is. Courts traditionally look to state law to determine what constitutes “private property.”

Hennepin County had argued that an early 20th century Minnesota statute removed any property right Ms. Tyler might have had. That statute declared that after a tax foreclosure, any remaining equity became the property of the local government. The county argued that under this statute, Ms. Tyler no longer owned the remaining equity, so the county could take it without triggering the just compensation requirement.

The Supreme Court brushed this argument away, explaining that although “[s]tate law is one important source” of the definition of property, it “cannot be the only source.” Otherwise, states could take whatever property they wanted without paying for it, simply by defining it away. If successful, such a tactic would make the Fifth Amendment meaningless.

Moreover, the American legal system has long required that governments take no more property than required to pay a tax debt, a tradition that can be traced all the way back to early English common law and Magna Carta. In the 13th century, King John promised that the government would take no more property than was required to pay debts. This principle continued throughout English and early American common law, and Minnesota recognized this principle up to at least 1884. And as the Supreme Court explained—and as Cato discussed in our amicus brief in support of cert in this case—Minnesota recognized a debtor’s property right to the remaining equity in her property in every situation other than tax liens. It was only when a debtor owed taxes that the government said the debtor lost her property right in her equity.

The idea that a property owner loses the right to her property because she fell behind on her taxes is contrary to the Constitution, Magna Carta, American tradition, and common sense. Thankfully, the Supreme Court unanimously recognized that today. In merry England, Robin Hood stood up to the Sheriff of Nottingham’s unfair taxation, and Magna Carta ended some of those practices. Here, Pacific Legal Foundation stood up to local governments’ home equity theft, and today the Supreme Court ended that practice. Three Cheers for Chief Justice Roberts and the unanimous Supreme Court.

How Can You Miss a Deadline Before You Even Exist?

Thomas A. Berry and Isaiah McKinney

Corner Post is a convenience store and truck stop in Watford City, North Dakota. Like many similar shops, its business model relies on a high volume of small‐​dollar transactions. And when customers pay for those purchases with debit cards, merchants like Corner Post pay a set fee to banks to process the transactions. Although this fee is 21 cents per transaction, the cost adds up quickly over numerous sales and is a significant operating expense for any business model that relies on small‐​dollar purchases.

The rate of 21 cents per transaction was set in 2011, when the Federal Reserve Board issued a regulation establishing that fee amount. The actual cost for banks to process each transaction ranges from 3.6 to 5 cents.

Corner Post opened for business in 2018, and a few years later it challenged this fee‐​setting regulation under the Administrative Procedure Act (“APA”) in the U.S. District Court for the District of North Dakota. Corner Post argued that the 21‐​cent rate set by the regulation was not “reasonable and proportional to the cost” that the banks incurred and that the regulation therefore exceeded the Board’s statutory authority.

But the district court never reached the merits of Corner Post’s legal argument. Instead, the court dismissed Corner Post’s case as being brought too late, holding that the suit was barred by the APA’s statute of limitations. The APA sets a six‐​year time limit for legal challenges to agency rules, and the court held that this time limit started running for Corner Post when the regulation was issued in 2011. The court thus held that Corner Post’s time to challenge the rule expired in 2017, a year before Corner Post opened its doors for business.

The Eighth Circuit affirmed the district court’s decision, and Corner Post petitioned the Supreme Court for review. The Cato Institute has now filed an amicus brief in support of Corner Post’s petition (with thanks to a team of Wiley Rein attorneys who took the lead on drafting our brief: Jeremy Broggi, Michael Showalter, Boyd Garriott, and Hannah Bingham).

Our brief explains that under the text of the APA’s statute of limitations, the six‐​year clock does not start until a particular plaintiff is actually injured (for Corner Post, it did not start until the business opened in 2018). For hundreds of years, the start date for statutes of limitations has traditionally been the date of a plaintiff’s injury, and nothing in the APA’s text contradicts that traditional understanding.

The government argues that since the APA provides for review of “final agency action,” the statute of limitations implicitly begins for all plaintiffs whenever the “final agency action” occurs (in this case, when the regulation was issued in 2011). But nothing in the text of the APA requires this reading; Congress did not explicitly depart from the traditional rule that the clock starts on the date of injury. The better reading of the APA is that the clock does not start until a plaintiff is injured and the agency action is final—in other words, finality is a necessary but not sufficient requirement to start the six‐​year clock.

The government’s argument would impermissibly protect agencies from lawsuits by businesses that did not even exist when a regulation was issued. Since Corner Post opened more than six years after the Board’s regulation was issued, the government’s approach would mean Corner Post never had a chance to challenge these burdensome regulations. The Supreme Court should take this case to correct the Eighth Circuit’s erroneous decision and allow Corner Post and others to challenge unlawful regulations.

The Right to a Jury Is Fundamental

Thomas A. Berry and Isaiah McKinney

Cornelius Burgess served as the CEO of Herring Bank for over a decade. After the bank suffered some losses, the Federal Deposit Insurance Corporation (FDIC) investigated Burgess for allegedly using bank funds for personal expenses. Eventually, the FDIC initiated an Enforcement Proceeding against Burgess before an FDIC Administrative Law Judge (ALJ), an agency employee. The ALJ ordered Burgess be removed from his job and fined him $200,000. Burgess appealed the ALJ’s decision to the FDIC, but his appeal was denied. After further appeals and procedural wrangling, Burgess then sued the FDIC in federal court, arguing that his Seventh Amendment right to a jury trial was violated, among other claims.

The Northern District of Texas temporarily enjoined the ALJ’s decision fining Burgess and ordering his removal, finding that the procedure violated Burgess’s constitutional right to a jury trial. The FDIC has now appealed this issue to the Fifth Circuit, and the Cato Institute has filed an amicus brief in support of Burgess.

In the brief, we explain why both history and precedent make clear that Burgess was entitled to a jury trial. The U.S. Constitution’s Seventh Amendment guarantees a right to a jury trial in all civil cases at law for disputes worth more than $20. This guarantee applies when the government is attempting to take someone’s “private rights,” like the rights to life, liberty, or property. If a “public right” is at stake however—a right created and specifically granted by the government—then the government can bring a claim before an executive tribunal, like an ALJ. But this narrow exception to the Seventh Amendment does not extend to government suits imposing civil penalties, which would take someone’s private property rights.

When a private right is at stake, the Fifth Circuit’s test for whether a defendant is entitled to a jury trial hinges on whether the suit is the type of action that was heard at common law at the time of the Founding. As the Supreme Court has held and as Cato shows in its brief, civil actions for penalties, like the FDIC’s action against Mr. Burgess, were actions at common law and were guaranteed a jury trial at the time of the Founding and before. At English and early American common law, not only were defendants in civil penalty suits entitled to a jury, but sometimes defendants in suits claiming damages for a breach of fiduciary duty, like the FDIC claims here, were given a jury trial.

Since this enforcement action for a civil penalty was an action at common law at the time of the Founding, Mr. Burgess is constitutionally entitled to a jury trial. The Fifth Circuit should affirm the District Court’s order on this issue and ensure that Burgess’s case is heard by a jury of his peers.