US regulatory power faces fresh test as new Supreme Court term nears
By John Kruzel
WASHINGTON (Reuters) – A case involving the vape industry gives the U.S. Supreme Court a chance to further erode the authority of federal regulatory agencies following other major rulings as the justices gird for a new term featuring important business-related questions.
The nine-month term, which begins on Oct. 7, also brings cases involving tech giants Nvidia (NASDAQ:NVDA) and Meta’s Facebook (NASDAQ:META) that could make it harder for private plaintiffs to win securities fraud lawsuits against companies in federal courts.
The vape industry case is the latest front in a regulatory rollback effort in the courts cheered by conservatives and business interests to weaken the federal agency bureaucracy that interprets laws, crafts federal rules and implements executive action.
The Supreme Court, in a June 28 decision powered by its 6-3 conservative majority, overturned a legal principle called “ Chevron (NYSE:CVX) deference” established by the justices 40 years ago that had called on judges to defer to federal agencies in interpreting laws they administer. That case involved an industry challenge to a U.S. regulatory agency’s fish conservation program.
The new case does not carry the same high stakes but nonetheless affords the conservative justices an opportunity to scrutinize actions of a regulatory agency, in this case the U.S. Food and Drug Administration’s denial of applications to sell flavored vape products.
The justices in June also issued rulings faulting actions by the Securities and Exchange Commission and Environmental Protection Agency. Additional cases challenging federal agencies have the potential to reach the justices this term.
The court will hear the FDA’s appeal of a lower court’s ruling that the agency failed to follow proper legal procedures under federal law when it denied applications by e-cigarette liquid makers Triton Distribution and Vapetasia to bring their nicotine-containing products to market.
The companies had filed FDA applications in 2020 for products with flavors such as sour grape, pink lemonade and crème brulee, and names including “Jimmy The Juice Man Strawberry Astronaut” and “Suicide Bunny Bunny Season.”
Although the FDA maintains that it has not categorically banned flavored e-cigarette products, companies seeking its approval must clear a high legal bar because, according to an agency court filing, such products pose a “known and substantial risk to youth.” The FDA has approved only 27 e-cigarette products – all tobacco or menthol flavored – while denying more than a million other applications.
“The FDA case is another attack on agency authority and power, so it seems a bit in keeping with the seminal cases from last term that stripped agencies of various powers or left them more open to attack,” said Karen Woody, a professor at Washington & Lee University School of Law in Virginia.
The court has not yet set a date for arguments in the case.
SECURITIES FRAUD CASES
The justices will hear separate bids by Facebook and Nvidia to fend off federal securities fraud lawsuits. The Supreme Court already has weakened the federal agency that polices securities fraud – the Securities and Exchange Commission. These new cases now could make it more difficult for private litigants to hold companies to account for alleged securities fraud.
“These cases represent new opportunities for the Supreme Court to narrow the pinhole – so even fewer federal fraud claims can proceed past the early stages – or widen it,” said Ann Lipton, a professor at Tulane Law School in Louisiana.
Facebook and Nvidia filed separate appeals after a lower court allowed class action securities fraud lawsuits to proceed against them.
The justices on Nov. 6 are due to hear arguments in Facebook’s bid to dismiss a lawsuit accusing the social media platform of misleading investors in 2017 and 2018 about the misuse of its user data by the company and third parties.
The court is due on Nov. 13 to hear arguments in a similar effort by Nvidia to scuttle litigation accusing the artificial intelligence chipmaker of misleading investors about how much of its sales went to the volatile cryptocurrency industry.
Woody said the business community should take heed given the weighty stakes. Woody added that she expects the court to rule in favor of the companies in both cases. She joined a court brief favoring Facebook.
“The Nvidia and Facebook cases read together could end up with companies needing to disclose more information and plaintiffs with a slightly lower bar for pleading requirements in a class action,” Woody said. “That combination could have companies worried about a potential increase in liability exposure.”
University of Nevada, Las Vegas law professor Benjamin Edwards said the court’s momentous term that ended in July continues to reverberate.
“I suspect the story in the business community for the next few years will be how to adjust” to the new legal landscape, Edwards added.
Anat Alon-Beck, a professor at Case Western Reserve University School of Law in Ohio, said the business community is likely to try to build on its considerable success in recent terms of “gutting regulatory agencies’ ability to create and enforce rules on industry.”