Once upon a time a good way to commit oil patch theft was to back a truck up to the tank battery in the middle of the night, fill ‘er up, and drive off into the darkness. In re: Black Elk Energy Offshore Operations LLC shows that modern methods don’t require heavy machinery.

Speaking of theft, LSU beats South Carolina

The facts

Black Elk was an offshore Gulf of Mexico operator in financial straits, plagued by rampant mismanagement, poor financial planning and “opulent spending by executives and employees”. After an explosion on one platform the regulators shut down another one, and Black Elk declared bankruptcy. The trustee initiated an adversary proceeding to recover money received by favored investors Schlomo and Tamar Rechnitz.  

Anticipating Black Elk’s insolvency, Nordlicht, the boss of Black Elk’s controlling shareholder, concocted a scheme to pay the Rechnitzes rather than paying Black Elk’s substantial debts. Nordlicht was found to have defrauded Black Elk’s creditors of $80 million by a complex series of machinations involving (among other moving parts) the sale of Black Elk’s best assets for $125 million, issuance of Series B equity shares to the Rechnitzes, having the Rechnitzes appoint him as their agent for all Black Elk transactions, creation of a special purpose entity to hold bonds, rigging a vote to subordinate the bonds to equity holders through manipulation of entities secretly controlled by Nordlicht, the result of which was the transfer $10.3 million to the Rechnitzes.  

Fraudster’s knowledge was imputed to the transferees

The question for the bankruptcy court was whether the Rechnitzes received Black Elk’s funds in good faith and whether their payment was properly traced to Nordlicht’s acts of fraud. In allowing the trustee to recover the $10.3 million the court rejected their argument that they were protected because they were good faith transferees.

Under Bankruptcy Code Sections 544, 548 and 550, a bankruptcy trustee may avoid or unwind transfers of a debtor’s assets and recover property from a transferee unless the transferee received the property in good faith and without knowledge of the voidability of the transfer.

The court’s decision turned on whether Nordlicht’s knowledge as the Rechnitzes’ agent was imputed to them as principals. They argued that Nordlicht acted outside the scope of his agency and that they should not be charged with knowledge of his fraudulent activities. Their hole card was that the trustee did not prove that they personally knew about Nordlicht’s wrongdoing and that their knowledge cannot be imputed or constructive. The court disagreed. Personal knowledge was not required.

Tracing

To decide the fraudulent transfer claim the court had to trace the funds paid to the Rechnitzes back to the proceeds received from the sale of the assets. The court found expert reports for both sides to be unsatisfactory and based the damage award on its own review of the flow of funds.

Tracing is a ”tool of equity” and the court’s conclusion was subject to review under an abuse of discretion standard. In other words, the ruling must have been so arbitrary and unreasonable as to constitute a clear and prejudicial error of law, or if it clearly fails to correctly analyze or apply the law.  

Here, great musicians who were called to the celestial chorus before their time (we’re going beyond the usual rock and roll suspects):

Tim Buckley

Sandy Denny

Charlie Parker

Gram Parsons

Townes Van Zandt

Mozart

In Self v. BPX Operating, a case with significant implications for Louisiana operators and royalty owners, the Supreme Court of Louisiana ruled that the doctrine of negotiorum gestio in La. Civil Code art. 2292 does not allow the operator of a drilling unit created by Louisiana’s conversation laws to withhold post-production expenses (PPCs) from the share of proceeds to be paid to an unleased mineral owner (a UMO). The doctrine does not apply to the relationship between the operator of a unit well and the UMO.   

Negotiorum gestio establishes a regime for management of the affairs of a person where the manager (the gestor) acts without authority to protect the interests of another (the owner) in the reasonable belief that the owner would approve of the action if made aware of the circumstances.

According to the Court, negotiorum gestio cannot be the basis for liability because a unit operator is always “acting with authority” under Louisiana’s oil and gas conservation laws which establish a quasi-contractual relationship between the operator and the UMO.

The court concluded that a party is only a gestor if his action is taken without authority, and La. R.S. 30:10 (A)(3) statutorily authorizes the unit operator to sell UMO’s share of unit production when the UMO has not arranged to dispose of its share. The requirement for 2295 to apply is not merely voluntariness but an absence of authority altogether, including authority granted by statute.  

A strenuous, and lonely, dissent

Justice Weimer would conclude that the authority should focus on the voluntary nature of the act of the gestor and be understood to mean the action is not taken pursuant to a legal obligation. A unit operator’s statutory authority to sell production is not the same as a statutory mandate.

The concept behind the establishment of drilling units is to prevent adjoining owners from having to drill offset wells by permitting them to share production proportionately to other unit owners. Forced pooling converts separate interests within the drilling unit into a common interest relative to the development of the unit and the drilling of the well.

Under the statutory scheme UMOs are entitled to sell their share production but the statute allows the operator to market production if a UMO fails to make his own arrangements. The UMO and the operator have no contractual relationship.

Justice Weimer noted that R.S. 30:10 is silent as to PPCs; thus there is no inherent prohibition against a unit operator looking to the Civil Code for a mechanism by which to recoup PPCs. Because the statute is silent as to PPCs, there is no conflict between that provision in the Conservation Act and art. 2292. Silence alone is insufficient to create a conflict.

Responding to the majority’s conclusion that because the operator has specific authority to sell the UMO’s share of production, the operator cannot be a gestor under 2292, Weimer reasoned that reference to “without authority” does not encompass permissive authority to act such as in 30:10.

Where does this leave the ultimate question

… that being whether, on any theory, the UMO can be required to bear its proportionate share of PPCs incurred by the unit operator? The court in Self and Judge Hicks of the federal district court in Johnson v. Chesapeake (who ruled that negotiorum gestio applies) did not address other theories urged by the producers, such as Louisiana laws of mandate, co-ownership, unjust enrichment, and fundamental property law. Johnson was also appealed but this ruling is only in Self.

There is plenty more to come on this big issue.

Your musical interlude

How will you and I become extinct? The UN assures us that the weather will be unpleasant whenever it happens. The IPCC has predicted that global “warming”, “heating”, “baking” “broiling” and other Game of Thrones-worthy agony would be the end of humanity. The latest:  The earth will be boiling!

Except what if it’s not true, and if it is true and the cause is humans, what if the “cures” are worse than the ailment? Don’t take my word for it; read on.

Predictions – Below the Mendoza line

If climate predictions were baseball, the doomsayers would already be in the Arizona Instructional League. The current UN climate chief claims that we have TWO YEARS to save the world! Don’t trust him, given the dismal history of eco-pocalyptic predictions, say Watts Up With That? and the Competitive Enterprise Institute. 

Is the apocalypse at hand?

Wildfires are not increasing

Extreme heat is NOT the biggest cause of death despite the desperate warnings of President Biden. 

Main stream media, sloppy and misleading … again

The New York Times makes dire predictions with no evidence, says Mark Morano at Climate Depot … and is plain wrong on climate and California wildfires. USA Today is no better on a rare cactus.

Who wins and who loses?

According to Robert Bryce, China is the beneficiary of the North American authoritarian EV policies. China has a near monopoly on the metals and minerals needed to build EVs, wind turbines, military weapons, and other alternative energy technologies.

Bjorn Lomborg and three physicists speak below about how the poorest people in the poorest countries will lose.

Follow the “science” to where, exactly?

Real scientists Richard Lindzen, William Happer and Steven Koonin told the World Court in the Hague that the science does not support the claim that climate change is caused by CO2 emissions. The IPCC is a political, government-controlled entity and its conclusions have no value as science. Who would lose in a quest for “net-zero”? The poor, because of mass starvation and lack of affordable energy.

Lomborg tells us that “following the science” so as to end foss il fuels is a bad bargain. That assertion is convenient for politicians because it allows them to avoid responsibility for the costs and downsides of climate policy. The message confounds climate science with climate policy. The notion is that there is nothing but benefit to ending fossil fuels and a hellscape if nothing is done. The costs of “just stop” oil, gas and coal are massively downplayed.

There is hope. Thank God for the green crusaders!

Your musical interlude

The real takeaway from Pruett v. River Land Holdings LLC is the reminder that the Texas Railroad Commission cannot adjudicate questions of title.

The facts

In 2001 Pruett acquired 323 acres and his mother acquired 194 acres of an original 550-acre tract in Milam County, Texas, which was burdened by an oil and gas lease. In 2021 River Land purchased the 194 acres. The deed reserved “any oil and gas leases to the extent that these remain viable and in effect.”   

River Land sued for a declaration that the lease had terminated as to the 194 acres in accordance with the cessation of production clause. River Land claimed that oil production had ceased for more than 60 days and that Pruett was judicially estopped from denying the lease had terminated because he had taken a contrary position in a 2008 lawsuit with then-operator Smith. The trial court declared the lease terminated. The court of appeal reversed and remanded.

The evidence

River Land introduced Commission records showing that no production had been reported by any operator of record for more than five years. Pruett claimed that when he acquired the 323 acres he became the sole owner of certain wells which he self-operated to produce every two months from 2005 to 2012.  He asserted that in 2012 Jet Tex obtained a P-4 and began to produce and sell oil from those wells on a profitable basis. He said he routinely pumped oil from the wells using portable generators, stored the oil in a tank battery, produced gauge reports showing 391 barrels on hand in December 2011, and thereafter the oil was stolen.

Property rights and the Railroad Commission

River Land said those claims failed to create a fact issue as to production. Smith, not Jet Tex or Pruett, was recognized by the Commission as operator of the wells at the time of the alleged operations and any production sold by Jet Tex during that time was illegal and could not constitute production under the lease.

The court disagreed with the trial court. Whether Jet Tex was legally entitled to engage in operations is a property rights issue. The Commission has no authority to determine ownership of land or property rights. Thus, the Commission’s records reflecting Smith as operator of record were not dispositive of whether Jet Tex was legally entitled to operate the lease. There were genuine issues of material fact. The court did assume without deciding that production by a nonregistered operator is unmarketable as a matter of law.

Production in paying quantities

There was a genuine issue of material fact about whether River Land met its burden to prove that lease terminated because of cessation of production in paying quantities. See pages 9 and 10 of the opinion for the two-prong test.  

The prudent operator test does not apply where there is total cessation of production for the number of days stated in the cessation-of-production clause. Cessation in paying quantities and total cessation are independent grounds for seeking termination of an oil and gas lease.

River Land’s summary judgment also failed because there was no evidence as to what time frame would constitute a reasonable time for measuring profitability and whether the wells were profitable during that time.

Judicial estoppel

In the 2008 lawsuit Pruett sought a declaration that the 1976 lease had terminated. But the court could not conclude that River Land met its burden to conclusively establish that Pruitt successfully maintained his prior position. There was no evidence that a final judgment that the lease terminated was signed by the court in that case.

Your musical interlude

It’s not exactly Deuteronomy 23:19, but the Supreme Court of Texas has an opinion about interest. They don’t like it if it’s compounded. Samson Exploration LLC v. Bordages addressed interest to be charged on unpaid royalties under an oil and gas lease.

The takeaway

Compound interest is disfavored in Texas law. An agreement for interest on unpaid amounts is an agreement for simple interest absent an express clear and specific provision for compound interest.

The late-charge provision

The oil and gas lease provided that royalty payments are due on the first day of the calendar month following some 60 days after production. If not timely paid, a late charge is imposed the next day “based on the amount due” and “at the maximum rate allowed by law”. That charge is payable on the last day of the month.

Royalty owner Bordages argued that when no payment is made by the specified date, another late charge calculation is triggered which includes not only past royalties as of the first day of the month but also accrued late charges as of the last day of the preceding month. Put differently: The provision imposes late charges on late charges, compounding them each month. 

The Court concluded that the late-charge provision calls for simple interest because of the absence of clear language specifying compound interest.

The court declined to define the degree of clarity and specificity that would be required to expressly stipulate to a compound rate of interest. The Court did say that “due and payable on the last day of each month” does not suffice. Temporal references such as “per annum” or “annually” standing alone are insufficient to sustain the assessment of compound interest. Those terms specify the time for payment. A plain reading of the late-charge provision shows that it calls only for simple interest, providing for a late charge based on the amount of royalty due.

Collateral estoppel

Bordages argued that Samson had previously litigated the identical lease language with a different lessor and lost (to the tune of $13 million in late charges. No wonder; the interest rate on both leases is 18%). This prompted the Court to examine the concept of “non-mutual collateral estoppel”, particularly regarding pure questions of law that have not been previously decided by the highest appellate court.

Texas courts disfavor applying collateral estoppel in the context of a pure question of law.  After a lengthy discussion, the Court concluded that collateral estoppel did not apply. If you really want to know more, see pages 3 through 8 of the opinion.  

Your musical interludes. It’s all about the ladies today.

I’m With Her

Molly Tuttle

Noeline Hoffman

and … Patti Smith? 

Montgomery Trustee v. ES3 Minerals and Echo Minerals is another Texas fixed or floating royalty case. Before diving into the details, perhaps it’s best to describe the pattern the courts seem to fall into to resolve these disputes. These are general rules of construction one sees time after time in these cases:

  • To the extent possible apparent inconsistencies or contradictions must be harmonized by construing the document as a whole. In other words, the court will consider the entire document, not just each party’s favorite parts.
  • To discern the parties’ intent, words and phrases of the instrument must be construed together and in context, not in isolation.
  • Words and phrases generally bear their ordinary meaning unless the context supports a technical meaning or different understanding.
  • The text of an instrument retains the same meaning today that it had when it was drafted.
  • When faced with a double fraction involving 1/8 in a mineral reservation or conveyance the court is not to give the fraction its arithmetical meaning; rather, evaluation of conveyances and reservations executed in the “early to mid-20th century” (Whenever that was, this one is a 1955 deed) begins with the presumption that 1/8 reflects the entire mineral estate, not just 1/8 of it.
  • The estate misconception theory refers to the prevalent mistaken belief during that time that a lessor reserving a 1/8 royalty only retained a 1/8 interest in the minerals rather than the entire mineral estate in fee simple determinable with the possibility of reverter.
  • Because of the presumption, treating 1/8 as a placeholder for future royalties generally results in a floating royalty interest.
  • The presumption is “readily and generally” rebuttable but the court must examine the entire instrument to determine whether the text rebuts the presumption.
  • Although not present in this case, courts often consider the presumed grant doctrine.

The conveyance at issue

“The grantors… exclude from this conveyance, a [NPRI] of one fourth (1/4) of the landowners’ usual one eighth (1/8) royalty.“

Because the conveyance used a double fraction involving 1/8 the court began with the rebuttable presumption that the 1/8 was a placeholder for the standard royalty and not a set arithmetical value. The court concluded that the deed reserved a floating ¼ NPRI in existing and future leases.

Appellees relied on six clauses in the deed that they argued rebutted the floating presumption because they established that the grantors were under no misconception about the extent of their ownership of the mineral estate. The court was not convinced. These exceptions were too far afield from the granting language for the conclusions based on the granting language to be rebutted.

It’s sometimes not that easy.

These “rules” remain the same even where the interests to be conveyed or reserved are described in two – or even more – seemingly different or even contradictory ways, often scattered throughout the instrument. The court then has to engage in the additional task of harmonizing the different clauses, which is not easy to accomplish in many cases. 

John Mayall RIP. You have choices today.

with Eric Clapton …

Mick Taylor ,,,

Peter Green

Litigation practice tip before we dive into Right-Way Sand Co. v. South Texas Pipelines LLC (STX). Waiting 27 months after being sued and after the offending activity has occurred before asking for an injunction to “protect the status quo” is probably a loser.

STX sued landowners Right-Way and others to exercise the power of eminent domain for construction of a new pipeline to carry polymer grade propylene (PGP). Landowners objected to the court’s jurisdiction, arguing that STX did not satisfy the statutory requirements for exercising the power of eminent domain, and asked the court to enjoin STX from, among other activities, coming on the property, ceasing operation of an already-constructed pipeline, and requiring removal of the pipeline. The trial court granted STX’s motion for partial summary judgment and denied the landowners’ plea to the jurisdiction and request an injunction. The court of appeals agreed.

What is required to be a common carrier in Texas?

A person is a common carrier under the Natural Resources Code if he ” … owns, operates or manages a pipeline … for the transportation of crude petroleum to or for the public for hire, or engages in the business of transporting crude petroleum by pipeline”. “Oil” includes crude petroleum oil. A petroleum product includes ” … any other liquid petroleum product or byproduct derived from crude petroleum oil or gas.”

Under the Business Organizations Code entities can use eminent domain if they engage as a common carrier in the pipeline business “for the purpose of transporting oil, oil products, gas, carbon dioxide, salt, brine, fuller’s earth, sand, clay, liquefied minerals or other mineral solutions.”

It’s not a slam dunk. Constitutional protections require courts to give “special scrutiny” to questions about a private entity’s exercise of eminent domain. An entity relying on the statutory power must strictly comply with all statutory requirements and when there is a doubt as to the scope of the power, the use of such power is construed in favor of the landowner. But that was not a big hill for STX to climb here.

PGP is an oil product whether it is derived from catalytic fracturing and distillation of oil or from dehydrogenation of propane that might have come from a gas well. It is a liquid derived from gas and is a petroleum product.

Evidence establishing a reasonable probability that the pipeline will at some point serve even one customer unaffiliated with the pipeline owner is substantial enough to satisfy the public use requirement.

The court concluded that STX is a common carrier and has the right to exercise the power of eminent domain over the landowners’ property.

No injunctive relief

A party is not entitled to the extraordinary remedy of a temporary injunction unless it pleads and proves (1) a cause of action, (2) a probable right to the relief sought, and (3) a probable, imminent and irreparable injury in the interim.

The landowners failed to comply with basic requirements for a temporary injunction:

  • The application was not verified,
  • There was no evidentiary hearing,  
  • The purpose of a temporary injunction is to preserve the status quo. The landowners waited 27 months after STX filed its original petition to seek an injunction. During that time the pipeline was installed and was operating. The court had a hard time understanding what “status quo” the landowners were trying to preserve.

Your musical interlude.

Maverick Natural Resources, LLC at al v. Glenn D. Cooper Oil & Gas, Inc. is for control freaks wherever you are … and for those of you who advise the aforesaid control freaks.

Cooper sent Maverick a letter offering to purchase oil and gas wells and leases in Crane County for $950,000, to which Maverick agreed. The letter contemplated typical due diligence rights for Cooper (examination of title, LOS’s, etc.). Cooper would have the exclusive right to purchase the properties until a certain date. The letter gave Cooper the sole discretion to decide whether to actually close.

The closing date passed and Maverick decided not to sell. Cooper sued for breach of contract, declaratory judgment and statutory fraud. Maverick’s response was that the “I can bail out whenever I want for no reason” language rendered the letter unenforceable for want of consideration. The trial court disagreed with Maverick and issued a series of summary judgments which, among others, awarded Cooper specific performance.

The court of appeal reverses

At the heart of the dispute was this language in the letter:

“… Should [Cooper] in its sole discretion, desire to move forward to a closing, no financing contingencies shall be had, and closing will occur promptly. Should [Cooper] discover anything during its diligence period it determines unacceptable, no closing or exchange of funds shall occur.”  (emphasis added)

Why the Court Did What It Did

For a contract to be enforceable it must be supported by valid consideration i.e. mutuality of obligation. Consideration refers to something that is a benefit to the promisor or a loss or detriment to promise. Although a promise to perform constitutes consideration, if the promisor retains the option to terminate the transaction in the performing it, the promise is illusory and does not actually bind the promisor. Consequently, if one party retains the option to walk away, that party must give separate consideration for the option. When the letter was signed the commitments in the letter were the sole form of consideration exchanged; no money was paid.

Cooper insisted that its sole discretion was contingent upon its discovery of unacceptable information during its diligence review and carried an implied duty to act in good faith. The court relied on the plain language of the contract and disagreed. Nothing in the text of the letter conditioned Cooper’s sole discretion on information discovered during the diligence, or anything else for that matter. Cooper insisted that a duty to act in good faith implied in the letter prevented the promise to perform from being illusory. The court declined to apply a good-faith requirement.

What can you do about it?

The Court gave the answer: The agreement could provide for a payment or other benefit in consideration of the promise to close.

There is another answer: Maybe it wasn’t a “control freak”. Maybe the culprit was incomplete, inaccurate, or imprecise language in the problematic sentence. Was the parties’ “real” intention something other than what the plain language said it was? In the world of contract construction, it doesn’t matter.

Your musical interlude.

In Louisiana et al v. Biden et al a federal district court granted relief to 16 states by enjoining the DOE’s pause in considering LNG export permits. The relief is not permanent. It means that the plaintiff-states have a likelihood of success on the merits.   

The “Export Ban”

As you know, in January President Biden announced a “temporary”, and perhaps indefinite, pause on pending decisions on whether to grant LNG export permits. The same day the DOE announced it was pausing determinations of applications to export LNG to non-Free Trade Agreement countries (Among others, all of Europe). The stated purpose was to update the assessments used to inform whether additional LNG export authorization requests are in the public interest.

The litigation

The complaint cited a number of violations of statute and the DOE’s own history and policies; for example, it contradicted a July 2023 DOE decision which concluded that halting approval of LNG exports has no factual or legal basis.

Defendants moved to dismiss on several procedural grounds, all of which were denied and none of which are relevant for this discussion (apologies to administrative law buffs). 

Bases for the decision

Here are (simplified) bullets explaining allegations cited by the court for the injunction Some are recited as facts and others as allegations that the court believed justify injunctive relief. They still must be proved:

  • Exports are governed by the Natural Gas Act, the purpose of which is to encourage the orderly development of plentiful supplies of electricity and natural gas at reasonable prices.
  • The DOE’s regulatory authority extends to the act of transporting gas to and from the United States. It does not extend upstream to production or downstream to consumption.
  • The NGA expressly instructs the DOE to ensure expeditious completion of all proceedings in which companies desiring to export gas to a foreign country apply for an export permit.
  • The DOE has no discretion to delay ordering a hearing on an application.
  • In denying a permit the DOE is required to make an affirmative showing that a permit would be inconsistent with the public interest.
  • The NGA does not define the public interest but the term has been interpreted for years to mean to promote the orderly production of plentiful supplies of natural gas at just and reasonable rates.
  • The National Environmental Policy Act requires a federal agency to prepare an environmental statement as part of major federal actions significantly affecting the quality of the human environment.
  • In 2020 the DOE concluded that such an analysis is limited to considering only the potential environmental impact starting at the point of delivery to the export terminal and extending to the territorial waters of the receiving country.
  • Environmental impacts of upstream and downstream activities are not within the scope of the DOE’s environmental review.
  • Page 7 of the opinion references damages claimed by the states and the industry.
  • The Export Ban is contrary to law and exceeds the DOE’s statutory authority.
  • The Export Ban directly contradicts without explanation or logic the EPA’s 2023 reaffirmation of its LNG export approval process based on its long-standing policy in statutory interpretation.
  • There are massive economic benefits for US communities by providing global access to reliable US natural gas supply needed to further the global energy transition from higher GHG-emitting fuels to lower GHG-emitting natural gas.
  • Exports of natural gas pay five times more than the sale of natural gas domestically. Thus, exporting natural gas is economically beneficial to the United States.
  • The EPA’s process is “ … completely without reason or logic, perhaps the epiphany (sic) of idiocy and ideography.” (A Chamber of Commerce-ready quip if there ever was one.)

What’s next?

For one thing, the election. Will this seditious, economy-busting pandering to the Greens end after November? Will the Administration simply ignore the injunction, as has been suggested? The damage to the affected states, the natural gas industry, and the country’s economic health and national security are real.

Enjoining a refusal to act is an order that requires the defendant to act. What if the DOE and the president just pick up their administrative marbles and go home, ignoring the order by doing nothing while pretending to be doing something? They could delay the process interminably while our gas-producing foreign competitors develop their own market-share-stealing export capabilities.

Your musical interlude.

The U. S. Supreme Court struck down the “Chevron doctrine” that has plagued the citizenry of our great country since 1984. In Loper Bright Enterprises et al v. Raimondo, the Court ruled that the Administrative Procedure Act requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority. The courts may not defer to an agency’s interpretation of the law simply because a statute is ambiguous. This case was a challenge by New England herring fishermen to a requirement of the National Marine Fisheries Service that fishing vessel owners pay for government-mandated inspectors to monitor their fish harvests.

The reasoning

Citing sources such as the Federalist Papers (No. 78 p. 525; No. 37, p. 276 if you’re interested) and decisions as early as Marbury v. Madison, Chief Justice Roberts concluded that the final interpretation of laws is the province of the courts. Chevron defied the command of the APA that a reviewing court, not the agency whose action is being reviewed, is to decide questions of law. Chevron required a court to ignore the reading it would have reached had it exercised independent judgment as required by the APA. Chevron’s presumption is misguided because agencies have no special competence in resolving statutory ambiguities. The Court observed that under Chevron’s broad rule of deference, ambiguities of all stripes triggered deference even in cases having little to do with an agency’s subject matter expertise.

What is Chevron deference?

In Chevron USA v. Natural Resources Defense Council, a quorum of six justices established a two-step approach to review of federal agency action. First, discern whether Congress had directly spoken to the question at issue.  If the intent of Congress is clear that’s the end of the matter. If the statute is silent or ambiguous with respect to the issue, a reviewing court could not impose its own construction of the statute as would be necessary in the absence of an administrative interpretation. Instead, the second step would be for a court to defer to the agency if the agency had offered a permissible construction of the statute even if the court would have reached a different result in a judicial proceeding.

A brief history

Since the beginning, the Supreme Court believed it should give “the most respectful consideration” to the executive branch’s interpretation of laws. The views of the executive branch could inform, but not supersede, the judgment of the judiciary. Beginning with the rise of the administrative state during the New Deal era the Court began to treat agency determinations of fact as binding on the courts, provided there was evidence to support the findings. The court did not extend similar deference to agency resolutions of questions of law. The interpretation of the meaning of statutes remained exclusively a judicial function.

In 1946 Congress enacted the APA “as a check upon administrators whose zeal might otherwise have carried them to excesses not contemplated in legislation creating the offices”.

Then, along came Chevron, which triggered what Justice Roberts referred to as a “marked departure from the traditional judicial approach of independently examining each statute to determine its meaning.” Over time the Court has whittled away the full effect of Chevron, but the lower courts have continued to apply it because it had not been reversed.

It remains that an agency’s interpretation of a statute may be especially informative to the extent it rests on factual premises within the agency’s area of expertise.

Stare Decisis

This doctrine governs judicial adherence to precedent but does not require the court to persist in Chevron if the quality of the precedent’s reasoning, the workability of the rule it established, and the reliance on the decision do not support stare decisis. Those three factors weighed against start decisis in Loper.

Concurring opinions

Justice Thomas noted that Chevron not only curbed the courts’ judicial powers but simultaneously expanded agencies’ executive power beyond constitutional limits.

Justice Gorsuch relied on Article III of the Constitution, which delegates the power to resolve cases and controversies to tenured judges. As for stare decisis, he noted that during the years under Chief Justices Warren and Burger the Court overruled an average of three cases per Term, including roughly 50 statutory precedents. And one could consider how the FDR era Court expanded the Commerce Clause.

The dissent

Justice Kagan saw the decision as yet another example of the Court’s rollback of agency authority, despite Congressional direction to the contrary, and referring to Chevron as “long-standing”. She saw a rule of “judicial humility” give way to “judicial hubris”, citing several cases in which the Court was well-advised to leave technical terms to the agency. She sees agencies as “politically accountable” and Congress as often intentionally leaving gaps and ambiguities in statutes. She took issue with the majority’s reliance on the APA.

What does Loper Bright mean?

The New York Times doesn’t like it which, to regular readers of this blog, means it must be a good result. Decide for yourself. One obvious effect: It diminishes the power of the unelected, often overly zealous federal bureaucracy to, without oversight from any court, micromanage the everyday lives of ordinary citizens and businesses of all sizes. It is a victory for the “forgotten man” the New Deal was envisioned to help and a defeat for the overweening regulatory apparatus that the New Deal spawned.

Lagniappe: Want to meet the real “Forgotten Man”? Read the book of the same name by economist Amity Schlaes. Among other issues, see how rent-seeking big business buddied up to the New Deal regulators to squeeze the little guy.

Willie Mays , RIP

Orlando Cepeda, RIP