Phoenix Rises: New Challenges to Old Federal Agency Regulations
What the Corner Post Ruling Means for U.S. Businesses
The United States Supreme Court issued a momentous decision on the final day of its 2024 term, potentially revitalizing challenges to old federal government agency regulations. In Corner Post, Inc. v. Board of Governors of the Federal Reserve System, No. 22–1008 (released July 1, 2024), the Court ruled that the statute of limitations period under the Administrative Practices Act begins when a claim by a plaintiff first accrues, not when the regulation became final. This interpretation substantially changes challenges to federal agency regulations.
The Origin of the Challenge
In Corner Post, a truck stop in North Dakota challenged a 2011 Federal Reserve Board regulation that set the maximum interchange fee that payment companies (such as Visa and Mastercard) could charge for debit card use. Corner Post began operations in 2018, approximately seven years after the enactment of the regulation. The company joined a suit brought under the Administrative Practice Act in 2021, alleging that the regulation was unlawful because it allowed payment networks to charge higher fees than the statute permits. The district court dismissed the suit as being past the applicable six-year statute of limitations of 28 U.S.C. §2401(a), a decision later affirmed by the 8th Circuit Court of Appeals.
Supreme Court's Reversal
The United States Supreme Court disagreed with the lower courts and reversed the decision. The Supreme Court found that the words "first accrues" in 28 U.S.C. §2401(a) indicate that the statute is a statute of limitations, not a statute of repose. This means that an action begins to accrue not when the regulation becomes final, but when the plaintiff's cause of action first accrues—i.e., when the plaintiff has a "complete and present cause of action" and the right to "file suit and obtain relief" (Op 6).
APA Challenges to Federal Regulations
Administrative Procedure Act (APA) challenges to regulations are typically brought soon after a federal agency's regulation becomes final. Businesses affected by these regulations often participate in the rule-making process, raising issues about whether the regulations are arbitrary or capricious. Once the regulations are finalized, industry participants may challenge them shortly after adoption. Indeed, certain statutes, such as the Hobbs Act, require that challenges must be brought within 60 days of a regulation or rule becoming final. The law prior to Corner Post in most Circuit Courts of Appeal was that the adoption of the regulation and it becoming final was the point when the cause of action under the APA first accrued.
The Supreme Court’s Interpretation in Corner Post
The Supreme Court disagreed with the interpretation and found that a plaintiff’s cause of action under the APA begins to accrue not when the regulation becomes final, but when a specific plaintiff’s cognizable harm arises. Since Corner Post was not even in existence when the regulation was passed, its cause of action began when it started accepting debit cards—seven years after the regulation's adoption.
Impact of the Corner Post Decision on Businesses
The Supreme Court's ruling in Corner Post will significantly impact businesses wishing to challenge federal government agency regulations in at least three key ways:
1) Reviving Challenges to Old Regulations: The decision allows businesses to challenge old agency regulations if the regulations first caused injury to the business less than six years ago—possibly long after the regulation's adoption. While this might not help businesses in existence when the regulations were first promulgated, it will enable newcomers to challenge long-standing regulations. Although the Supreme Court majority downplayed the significance of allowing old regulations to be challenged anew as arbitrary and capricious—given that these statutes may have been contested when initially adopted—Corner Post will enable courts to review the record with current circumstances in mind. What may have appeared reasonable when adopted may prove to be less so over time. Also, new challengers may bring up new ways in which the old regulation may be arbitrary and capricious.
2) The Connection With the Overturning of the Chevron Doctrine: Coupled with the overturning of the Chevron doctrine—which gave deference to agency interpretations when statutes were ambiguous—Corner Post allows businesses to challenge regulations initially upheld under Chevron. Despite the majority opinion in Chevron minimizing the impact of its overturning on cases previously decided using Chevron deference, Corner Post allows many of those decisions to now be challenged. Given how long Chevron deference was in place, this expansion of the statute of limitations could open up possibilities for challenges that were long considered dead.
3) Broader Scope of Business Challenges: Corner Post also allows businesses not directly regulated by the regulations to challenge their impact. The Federal Reserve regulation at issue in Corner Post regulated interchange companies, not the businesses accepting the debit cards. While it has been long-standing that a company could challenge an old federal agency regulation when the agency tried to enforce the regulation against a company, that would not have helped Corner Post since it was not an interchange company. Why is this important? There are many regulations which indirectly impact businesses for which the business may not have participated in the underlying agency proceeding. Corner Post allows those companies to challenge the regulation long after it was adopted when it first started to impact their business.
Potential Consequences for Businesses
Businesses should also be aware that Corner Post may also open up regulations which a business has long relied on in building its business model. For example, an interchange company that built its business model around existing maximum rates might find its model unsustainable if the regulation is challenged and the maximum rate reduced. Similarly, businesses that rely on agency regulations to reduce liability or costs may find that those regulations can be challenged long after their adoption. Typically, regulations change through an orderly, APA-driven process with notice and comment. However, Corner Post raises the possibility that long-standing federal regulations could be reversed much more quickly by a court, without widespread industry attention.
Strategic Considerations for Businesses
Given that the statue of limitations is still 6 years, businesses should:
1) Review the Impact of Federal Regulations: Thoroughly review the impact of all material federal government agency regulations. This review should not be limited to regulations that directly govern the business but should include those affecting suppliers or customers. If a regulation's impact on the business is less than six years old and detrimental, the business should consider challenging it if it can argue that the regulation is arbitrary or capricious.
2) Assess Vulnerability of Business Models: Businesses should also assess their models to determine which regulations could have the most significant impact if overturned or changed. Public companies might consider adding a risk factor to their filings, highlighting regulations that, if reversed, could materially impact their operations.
3) Increase Surveillance of Regulatory Litigation: With the potential for more challenges to old federal agency regulations, businesses should enhance their surveillance of related litigation. This could involve joining industry associations that monitor such challenges and regularly reviewing industry publications to stay informed.
Conclusion
The Corner Post decision marks a significant shift in how businesses can challenge federal agency regulations. By extending the statute of limitations and broadening the scope of potential plaintiffs, the Supreme Court has opened new avenues for businesses to contest regulations long after they have been implemented. However, this also introduces new risks for companies that rely on existing regulations. Businesses must stay proactive, continuously reviewing the impact of regulations and remaining alert to legal developments that could affect their operations.
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