United States: Companies Should Be Able To Challenge Old Rules With New Injuries

Wiley's Jeremy Broggi and Michael Showalter analyze the potential impact of a pending US Supreme Court case on new businesses that are subject to old and questionable federal laws.

Must new businesses accept unlawful federal regulations that are older than the company, or may they challenge such regulations in federal court?

The US Supreme Court granted certiorari to answer that question in Corner Post v. Board of Governors of the Federal Reserve System, a case that will decide whether a right of action challenging a federal agency rulemaking accrues when the rule is promulgated or when it injures the plaintiff.

The case is important for all regulated entities, and especially for new businesses seeking the same opportunities to challenge agency regulations that were afforded their more established rivals.

The certiorari grant may reflect the importance the Supreme Court now places on fidelity to statutory text and the court's increased scrutiny of administrative power that appears to exceed textual limits. The lower court in this case, following several other lower courts, entered an agency-protective judgment without any attempt to grapple with the pertinent issues of statutory interpretation.

Yet the Supreme Court has stressed over and over again in recent years that statutory interpretation must heed what a statute actually says, and that the judiciary must ensure that federal administrative power doesn't encroach statutory and constitutional boundaries. The certiorari grant could portend another admonition to lower courts to apply the law as written.

New Business, Old Rule

Corner Post is a convenience store located in Watford City, N.D. Like many shops, it relies on a high volume of small‐dollar transactions. When a customer pays with a debit card, Corner Post pays the card issuer an "interchange fee" to process the transaction.

The amount of the interchange fee is set by federal regulation. In an amendment to Dodd-Frank, Congress directed the Board of Governors of the Federal Reserve System to establish a fee that is "reasonable and proportional to the cost incurred by the issuer with respect to the transaction." In 2011, the board issued a rule setting a maximum interchange fee of 21 cents per transaction.

Corner Post opened for business in 2018 and soon after sued to challenge the board's rule under the Administrative Procedure Act. But the Eighth Circuit held the action is barred by 28 U.S.C. § 2401(a), which establishes a six-year statute of limitations for civil actions against the US that starts when "the right of action first accrues."

Even though none deny that, as originally understood, a right of action first accrues when an unlawful act injures the plaintiff, the Eighth Circuit concluded Corner Post's action accrued when the board promulgated the rule in 2011.

Under this approach, Corner Post's time to challenge the interchange-fee rule expired in 2017 even though the company didn't exist until 2018. The Eighth Circuit cited the Administrative Procedure Act's provision limiting judicial review to "final agency action," but it didn't explain how that could alter the longstanding rule that an action doesn't accrue under Section 2401(a) until the plaintiff is injured.

Presumption of Judicial Review

For decades, the Supreme Court taught that the APA embodies a basic presumption of judicial review of unlawful federal agency action. In its seminal decision Abbott Laboratories v. Gardner, the court explained that Congress through the act had generally authorized pre-enforcement review of agency rules.

Under Abbott Labs, regulated parties can challenge the validity of federal regulations on their face rather than being forced to wait to raise their objections as defense in a future enforcement proceeding.

Pre-enforcement review is now widely regarded as an essential check on the administrative state, partly because many companies have reasonably concluded that advancing even a meritorious defense in an enforcement action carries too much risk.

And in some cases, that opportunity may never even arise. For example, because the rule at issue here regulates conduct between private parties, failure to pay the interchange fee would result in a private dispute between the merchant and the card issuer, not an enforcement action.

Pre-enforcement review is essential for checking the modern administrative state. But it raises a conceptual challenge with statutes of limitations. In a traditional agency enforcement proceeding, it's obvious that the right to challenge the result of the proceeding arises at its conclusion as both the "final agency action" and the injury to the target arise together.

And while the same may often be true outside an enforcement proceeding, it's not always so. For example, the rule adopting the interchange fee—the "final agency action"—occurred in 2011, but Corner Post was not injured until it opened for business in 2018.

Statutory Text

The Eighth Circuit's approach plainly contradicts the pertinent statutory text. Though some other courts have taken the same flawed approach none has ever even tried to offer a textual defense of it.

As the Sixth Circuit has explained, the APA's finality provision simply states that an APA claim doesn't accrue until the plaintiff is injured and the agency action is final. It doesn't alter the rule that a right of action can't accrue until the plaintiff has been injured.

Because the APA doesn't say a claim can accrue before injury, an interpretation to that effect requires the view that the APA modified Section 2401(a)'s accrual rules implicitly. And because the Supreme Court holds a strong presumption against interpretations of implied modification, the Eighth Circuit was required to find "clear and manifest" evidence that Congress intended modification before departing from Section 2401's plain text. But it cited no such evidence at all.

The upshot—and the practical importance of this case—is that the Eighth Circuit's approach deprives companies newly injured by old agency action of access to the federal courts in the face of a massive and ever-growing administrative state.

For those companies, the better approach—and the only one consistent with the law—would be to reaffirm the longstanding rule that a statute of limitations begins to run when the plaintiff has been injured.

The case is Corner Post, Inc., Petitioner v. Board of Governors of the Federal Reserve System, No. 22-1008.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Originally published by Bloomberg Law.

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