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What Might Overruling Chevron Deference Mean for the Alcohol Industry?

Writer's picture: James NiekampJames Niekamp

Updated: Jul 29, 2024


On June 28, 2024, the United States Supreme Court ruled by a 6-3 majority decision in Loper Bright Enterprises v. Raimondo, which overturned the 1984 landmark case, Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.


The Chevron Deference Standard


To properly understand the ruling in Loper, it is important to first understand the “Chevron Deference Standard” and its origins.


In the 1984 Chevron case, the Supreme Court created a two-step approach in reviewing a federal agency’s interpretation of a rule it administers. The first step is determining whether Congress directly spoke to the question at hand. If the intent of the statute is clear, then the court must reject the agency’s statutory interpretation that is at odds with the direct Congressional interpretation.


However, the second step applies to laws that are ambiguous or statutes where Congress has not directly spoken on the question at hand. In these cases, the Chevron decision gives deference to the federal agency’s interpretation, so long as it is a permissible construction of the statute. Therefore, the Chevron decision required judicial “deference” to the federal agency’s statutory interpretation when dealing with ambiguous law.


The Loper Decision


In the 6-3 majority opinion in Loper, the Supreme Court overruled Chevron on the basis that the Chevron deference standard countered the Administrative Procedure Act (“APA”), which states that courts must decide all relevant questions of law when reviewing agency action. The APA requires that judicial review of agency policymaking and fact-finding be deferential but does not require deference in questions of law.


In the majority’s opinion, the court referenced the Skidmore deference standard, established in Skidmore v. Swift, which requested courts give “respect” to an agency’s statutory interpretation where the interpretation is “persuasive” to the courts. While this does leave room for the courts to turn to the agencies and provides agencies with some power, the “persuasive” nature of the Skidmore defense makes it very subjective.


The Effects of the Loper Decision on TTB


As the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) is a federal administrative agency, the Loper decision directly impacts TTB. The Chevron Deference standard gave direct deference to TTB for ambiguous laws and the Loper decision sent the deference back to the federal courts.


That said, it is important to understand two significant practical implications; first, federal courts simply have more discretion now in deferring to federal agencies, so it is highly possible courts continue to consistently defer to federal agencies to maintain the status quo. Second, the procedural hurdles in place and resources required to challenge the rulings of a federal agency can be incomprehensible to those outside of a particular regulated industry.


A primary example of this is TTB's broad and consistent prohibition against statements on alcohol beverage labels that could infer a health benefit pursuant to 27 CFR § 4.39(h) and 27 CFR § 5.129. In practice, TTB consistently interprets and applies these rules as prohibiting a wine or spirits label from stating that the product contains electrolytes, even though the product contains them. Many proprietors are now adding electrolytes to alcoholic beverages on the belief that it helps the consumer "bounce-back" quicker the next morning after a night of drinking. TTB's consistent position is that such a statement is a prohibited health-related claim, and therefore cannot be on the label. Many First amendment lawyers would likely view this as a violation of free speech, that would not hold up in court.


However, the rule continues to exist. Why? Because no one is willing to invest the resources needed to challenge it, knowing that a victory is never guaranteed. Whether things will be different now in light of the overturning of Chevron remains to be seen.

 

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