In recent weeks the U.S. Supreme Court has fundamentally changed the ways that laws are interpreted and enforced by federal agencies. These decisions will have far-reaching impacts on heavily-regulated sectors, such as the U.S. maritime industry, potentially altering the balance of power between stakeholders and federal regulators.
Civil penalties require 7th Amendment protections
On June 27, 2024, in SEC v. Jarkesy, the Supreme Court held that under the Seventh Amendment, the Securities and Exchange Commission (SEC) must bring civil-penalty actions for securities fraud in federal court, where the defendant is entitled to a jury trial in accordance with the 7th Amendment, and cannot do so before its in-house Administrative Law Judges (ALJ).
The case has immediate, direct implications for ocean carriers and marine terminal operators, whose actions are regulated by the Federal Maritime Commission (FMC). Similar to the authority held by the SEC when imposing civil penalties for securities fraud, the FMC is empowered to impose civil penalties for violations of the Shipping Act. Under its current adjusted rates, the FMC can impose penalties of up to $73,045.00 for each “knowing and willful” violation of the Shipping Act or FMC implementing regulation or order, or up to $14,608.00 for each such violation that does not meet the “knowing and willful” standard. Like the SEC, the FMC has typically imposed such civil penalties – which are the Commission’s key enforcement mechanism under the Shipping Act – before the FMC’s ALJs. The use of internal ALJs includes relaxed evidentiary and discovery rules, generally followed by deferential judicial review if and when a party appeals an ALJ’s imposition of civil penalties.
Accordingly, prior to the Supreme Court’s decision in Jarkesy, it was a relatively low cost and straightforward effort for the FMC to impose civil penalties against ocean carriers and marine terminal operators for alleged Shipping Act violations. Indeed, in recent years the FMC has increased its enforcement of the Shipping Act, particularly when seeking to ensure that ocean carriers and marine terminal operators “establish, observe, and enforce just and reasonable regulations and practices relating to or connected with receiving, handling, storing, or delivering property.” Through a series of rulemakings, reinforced by the Ocean Shipping Reform Act of 2022, Pub. L. No. 117-146, the FMC has increased its use of civil penalties to address what the Commission has deemed to be unreasonable practices in the billing of demurrage and detention charges (i.e., charges for the storage of containers at marine terminals, or use of intermodal equipment, following the expiration of a “free time” period). For example, in May 2024, actions by the FMC’s Bureau of Enforcement, Investigations, and Compliance led to a compliance agreement with an ocean carrier yielding nearly $2 million in civil penalties for demurrage and detention charges that allegedly violated the Shipping Act. Given the Supreme Court’s decision in Jarkesy, the FMC’s ability to rely on its civil penalty authority to enforce such alleged Shipping Act violations has been placed into doubt.
The FMC is not alone in facing potential challenges from the Jarkesy decision. Numerous other agencies that regulate the U.S. maritime industry, such the U.S. Coast Guard (USCG) and Environmental Protection Agency (EPA), possess similar civil penalty authorities that are often implemented through administrative proceedings. While these agencies do not rely upon internal ALJs in the same manner as the SEC or FMC, it is likely that future cases will test the limits of Jarkesy, which may ultimately force these agencies to impose civil penalties only through federal court proceedings that guarantee the right to a jury trial.
Chevron deference eliminated
In the immediate wake of Jarkesy, on June 28, 2024, in Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce, the Supreme Court struck down the 40-year-old pillar of administrative law established in Chevron U.S.A, Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Under Chevron, if a court determined that a statute was ambiguous or silent on an issue, it was required to defer to an agency’s interpretation on that issue, provided such agency interpretation was “permissible” (i.e., that the interpretation was “rational” or “reasonable”). Accordingly, under such Chevron deference, agencies were fully empowered to fill in statutory gaps with their own regulations and interpretations, and courts were required to defer to such agency interpretations, even if the court would have independently reached a different interpretation.
In striking down such Chevron deference, the Supreme Court determined that courts must now exercise their own independent judgment when deciding whether an agency has acted within its statutory authority and cannot defer to the agency’s own interpretation of the law. As a result, when challenging an agency interpretation of an ambiguous or silent statutory provision, maritime stakeholders should find a more even playing field when advancing alternative interpretations before a court. Notably, however, other forms of agency deference – such as that established by Skidmore v. Swift & Co., 323 U. S. 134 (1944) – remain intact. Under Skidmore deference, courts and litigants may rely upon agency interpretations for guidance, particularly contemporaneous interpretations of a statue to the statute’s creation, or otherwise consistent or longstanding interpretations of a statute.
The impacts for regulatory agencies such as the FMC, USCG, and EPA could be widespread. As an initial matter, the Loper Bright ruling may open up the opportunity for regulated entities to challenge agency interpretations of ambiguous statutory provisions. The result of such potential increased litigation – and the lack of deference for an agency’s interpretation – is that maritime stakeholders will be increasingly reliant upon, and subject to, court interpretations of law. There is also an associated risk that, without deferring to agency interpretations, differing jurisdictions can more easily reach differing results when interpreting ambiguous statutes. As such, entities operating in multistate operations, such as maritime operators, may encounter greater difficulty in complying with the law when moving between jurisdictions.
Door opened for more legal challenges to regulations
In a third shockwave to long-standing administrative law norms, on July 1, 2024, the Supreme Court held in Corner Post, Inc. v. Board of Governors of the Federal Reserve System that the statute of limitations applicable to challenges to agency regulations under the Administrative Procedure Act (APA) is more flexible than previously understood, opening the door for many challenges previously thought to be time-barred. As a general matter, the APA has a six-year statute of limitations, which previously was understood to mean that a challenge to an agency regulation must be brought within six years of when such regulation becomes effective. However, in Corner Post, the Supreme Court clarified that a claim “first accrues” under the APA when a party suffers an injury from an agency final action, not simply when agency takes final action. As such, if a party is injured by an agency’s regulatory action – even if the underlying regulation is decades old – the party may still have the right to challenge the agency’s regulation.
From a maritime stakeholder perspective, Corner Post may open up a world of opportunity to challenge agency regulations that well past the six year mark of when such regulations went into effect. The unfortunate reality is that many regulations that govern maritime operators are woefully out of date and may be causing harm to the U.S. maritime industry on a regular basis. To the extent that a maritime stakeholder suffers an injury (monetary or otherwise) from an existing regulation, that injury may provide a basis for challenging the agency’s regulation under the APA, regardless of when the regulation was promulgated.
When the Supreme Court’s decisions in Jarkesy, Loper Bright, and Corner Post are read together, it is clear that the Supreme Court has fundamentally impacted the regulation of the U.S. maritime industry. Stakeholders now have greater protections from the imposition of civil penalties, a more balanced court review process when challenging agency interpretations of ambiguous statutes, and a longer statute of limitations for challenging agency regulations under the APA. Agencies are continuing to review their changed authorities and the full impacts of these decisions will continue to evolve with further court challenges. Accordingly, regulated maritime entities should reevaluate regulatory approaches in consideration of this changed administrative law landscape and carefully consider the Supreme Court’s new framework in evaluating potential opportunities and legal risks.