Supreme Court Overturns Chevron Doctrine, Reshaping CRE Regulation

How Loper Bright and the End to the Chevron Doctrine Impact CRE

What does a 40-year-old legal dispute involving commercial fishing have to do with real estate? As it turns out, a whole lot.

Back in 1984, the U.S. Supreme Court handed down a big decision in Chevron USA Inc. v. Natural Resources Defense Council that created an important legal precedent that became known as the Chevron deference doctrine. Effectively, that ruling gave regulatory agencies the power to step in and make decisions in cases where the law was not clear. Fast forward to today, and the Supreme Court is revoking that decision-making power and putting it back in the hands of federal courts.

The Supreme Court released its decision in a new case, Loper Bright Enterprises v. Raimondo, in June that said that the Chevron approach does not fit with the Administrative Procedure Act (APA) that says courts should make decisions on legal questions themselves. In its current ruling, the Supreme Court said that while courts should respect agencies’ decisions on policy and facts, the courts must handle questions about how laws are interpreted.

What the Supreme Court is trying to do with Loper Bright addresses the fact that over the past 40 years, there has been a gradual shift in power to the point where there is now too much power held by the regulatory agencies, explains Byron Smith, Sr., Esq., CCIM, President of Metropolitan Realty Group Inc. in Vienna, Va. According to Smith, one of the key arguments behind the new decision is that the Constitution says that the courts are the final arbiter on what the law says in the U.S. – not regulatory agencies. If certain expertise is needed, the court can access that expertise or needed information, while still maintaining control in decision-making.

Opening the Door to Legal Challenges

The Loper Bright ruling is significant on a couple of different fronts. For present and future challenges to laws involving regulations, decision-making will be made by one of the 94 district courts in the federal court system. Another important twist came a few days after Chevon was overturned with Corner Post Inc. v. Board of Governors of the Federal Reserve System. The Corner Post ruling significantly extended the statute of limitations on decisions, throwing the door open wide for past and future court challenges.

Under the previous rule, the clock started on the six-year statute of limitations on the date of the final agency action. The new rule starts the clock on the date a challenger is “injured” by an action. So, whereas in the past if a ruling was made in 2020, the statute of limitations would run out on that same date in 2026. Now if an injury occurs at any point in the future, say in 2028, that statute of limitations to challenge that ruling would run six years from that date.

Combined, Loper Bright and Corner Post are likely to result in numerous challenges to federal agency decisions, even those that have been previously adjudicated and were thought to be settled law, notes Smith.

Massive Power Shift

Legal experts agree that this is a landmark decision because it shifts the balance of power from the administrative agencies, such as the Environmental Protection Agency (EPA), Housing and Urban Development (HUD), Occupational Safety and Health Administration (OSHA), and Federal Deposit Insurance Corp. (FDIC) among others, back to the courts. However, the ruling only applies to situations where there is either ambiguity or an administrative gap in understanding. “This is really about power to review and then reject these interpretations that the federal administrative agencies have made,” says Smith.

• Fair Housing Laws administered by HUD
• Fair Credit Reporting Act and regulatory oversight on banking, which has implications for real estate financing
• Laws related to environmental testing, brownfield clean-up, clean air and clean water provisions as regulated by the
• EPA or Army Corps of Engineers
• Land use and zoning
• Government contracts
• Labor laws and OSHA requirements

Previously, developers and owners were in a situation where they had to fight city hall or fight these agencies, which was somewhat impossible. Now, if it’s important enough and you’re willing to bear the costs, you can adjudicate a decision and fight for a better result, says Hampton Friedman, CCIM, JD, Vice President – Brokerage at Equity LLC in Austin, Texas. “I feel like it gives the players a lot more power,” he says.

“What’s going to be interesting is seeing the consequences and the unintended consequences,” adds Friedman.

Everyone is talking about areas that are likely to be impacted, such as environmental, planning, zoning, fair housing and lending. “We all see the obvious ones. What’s going to be interesting is seeing the consequences and the unintended consequences,” adds Friedman. “These consequences will have to play out over time, and a lot of them will be unintended, but it gives real estate people a fair fight so that the EPA or planning or zoning can’t come in and just blindly drop regulations.”

Leveling the Playing Field

The expectation is that the change will be more beneficial to the regulated parties. “If you looked at this as a seesaw where you had the administrative agencies being this 150-pound kid at one end, and at the other end the regulated party is up in the air because of that bigger weight,” says Smith. Now the weight of that 150-pound kid has been winnowed down and that seesaw is going to be a little more balanced, and perhaps lean more in favor of the regulated party, he adds.

Many cities are very restrictive in their zoning and development, and it can take 12 to 24 months just to get a site plan approved. The hope is that this ruling will rein in regulatory agencies and make it easier to move projects forward. Likely, some of the large firms with deep pockets will pave the way with challenges that will ultimately trickle down to the smaller players.

Easing some of those regulatory requirements could make it easier to move development projects forward. “The things that impact our business from a local level are mainly environmental issues,” says Bill Adams, CCIM, President of Adams Commercial Real Estate in Atlanta. As an urban firm in the Atlanta market, Adams encounters environmental issues in just about every one of the transactions he works on with clients. “So, if that eases up, then that will make life a little bit easier for us,” he adds.

One challenge with the move back to the courts is that it could result in greater disparity in rulings. For example, if you’re dealing with the EPA, you know that you’re going to get one answer. But in the federal court system, you may have a judge that rules in your favor in one district and not in another. That creates more uncertainty and confusion, says Adams. “Whether you like the existing rules or not, business doesn’t like uncertainty,” he says.

Wave of Lawsuits Ahead

The near-term impact is that this new ruling creates a lot of uncertainty and chaos. “The real rub of this is that we don't know what the courts are going to say,” says Smith. A federal court may decide to side with the regulatory agency, or they might not. In addition, federal courts are not all the same. For example, a court in New York might decide differently than a court in Texas looking at the very same issue.

One thing that everyone can agree on is that the Loper Bright ruling is going to unleash a lot of legal challenges, likely with some lawsuits filed before year-end. The litigation of those challenges will take time to work their way through the court system. Once those decisions start to emerge, there will be case law and precedence that start to indicate a path forward on issues.

“Will we get immediate answers? No, simply because the path through the court system can be pretty long,” says Smith. It could be two-plus years before the initial rulings start to frame the situation, and it will be longer to determine whether or not there will be disparity in the rulings. Even though the pace of change will be slow, regulated parties are going to be much better off simply because they are going to have more power and won’t be just steamrolled by the administrative agencies, he adds.

The best advice for CCIMs in this changing environment is to be aware of the changing landscape and stay informed on decisions that may impact their business focus specifically. ■