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Greetings, Court Fans!

We’re back with our final Update of OT21, covering yesterday’s decisions in West Virginia v. EPA (No. 20-1530) and Biden v. Texas (No. 21-954), as well as a straggler from last week, Becerra v. Empire Health Foundation (No. 20-1312). We’ll also preview some of the cases coming up for OT22.

We’ll start with West Virginia v. EPA, a big win for coal companies and enemies of the administrative state. In a 6-3 decision, the Court held that the Environmental Protection Agency exceeded its statutory authority by devising emissions caps based on a “generation shifting” approach. That may sound small and technical, but the impact of the decision could be tremendous, as it enshrines a contested body of administrative law—the “major questions doctrine”—which will likely make it much more difficult for agencies to use their subject-matter expertise to act decisively in important areas where Congress has not specifically delegated them authority to act.

The case concerned the Clean Power Plan, an EPA rule promulgated in 2015, which addressed carbon dioxide missions from existing coal- and natural-gas-fired power plants. The EPA acted under Section 111 of the Clean Air Act of 1970, which gave it authority to implement “New Source Performance Standards”—that is, to regulate certain pollutants from new or modified power sources. Although Section 111 was aimed primarily at new power sources, it also (through Section 111(d)) authorized the EPA to regulate certain existing sources. Under Section 111(d), it is the States that set the actual rules governing existing sources (like power plants), but the EPA got to determine the emissions limit with which the sources would have to comply. Traditionally, the EPA had set that limit by determining the “best system of emission reduction,” or “BSER,” that has been demonstrated for the power source at issue, figuring out the “degree of emission limitation achievable through the application” of the BSER, and then imposing an emissions limit on sources that “reflects” that degree of limitation. Sources could then achieve that limitation by any means, so long as their emissions were no greater than the amount achievable through the BSER. With the Clean Power Plan, the EPA went a bit further. It determined that the BSER for existing coal and natural gas plants included not just systems of emission reduction that were already in practice, but also “generation shifting” at the grid level—that is, a shift in electricity production from higher-emitting to lower-emitting sources. One generation-shifting measure was to shift generation from existing coal-fired plants to natural-gas-fired plants, which produce less carbon dioxide per unit of electricity generated than coal plants. A second generation-shifting measure was to shift generation from both coal- and natural-gas-fired plants to renewables like wind and solar. So the BSER was one that would reduce carbon pollution primarily by moving production to cleaner sources. The EPA then determined “the degree of emission limitation achievable through application” of the generation-shifting BSER and imposed emissions performance rates that would require existing coal plants to engage in generation shifting. The EPA recognized that the CPP would impose billions of dollars in compliance costs, but concluded that it was necessary

Almost as soon as the CPP was promulgated, it was stayed by the Supreme Court in response to a challenge by several states and private parties. Then, in 2019, the Trump Administration repealed the CPP and replaced it with the Affordable Clean Energy Rule (ACE rule), which gave states discretion to set standards and gave power plants more flexibility in complying with those standards. The Trump Administration argued that it was required to end the CPP because it exceeded the EPA’s authority under the Clean Air Act, which only allows the EPA to implement measures that apply to the physical premises of a power plant, rather than the kind of grid-wide generation-shifting measures that the CPP required. In January 2021, the DC Circuit vacated the Trump Administration’s repeal of the CPP, holding that it “rested critically on a mistaken reading of the Clean Air Act”—namely, that generation shifting cannot be a “system of emission reduction” under Section 111. The court also vacated the replacement ACE Rule, and remanded everything to the EPA for further consideration. A month later, the EPA (now under the Biden Administration) moved the DC Circuit to partially stay the issuance of its mandate while the Agency considered a new Section 111(d) rule to replace both the CPP and ACE. No party opposed the stay, but a coalition of states and industry groups sought certiorari and the Court granted review.

In a decision by the Chief Justice (joined by Thomas, Alito, Gorsuch, Kavanaugh, and Barrett), the Court reversed the DC Circuit, holding that the EPA lacked authority to promulgate the CPP. Before addressing merits, the Chief addressed a question of justiciability. The EPA argued that no party had Article III standing because the Agency had already stated its intention not to enforce the CPPP and to instead engage in new rulemaking. But the Chief rejected this argument noting that the EPA “nowhere suggests that if this litigation is resolved in its favor it will not reimpose emissions limits predicated on generation shifting; indeed, it vigorously defends the legality of such an approach.” The petitioner States therefore were injured since the CPP (and any new rule premised on generation shifting) would require them to more stringently regulate power plant emissions within their borders. For the same reason, the case was not moot. “Voluntary cessation” does not moot a case unless it is “absolutely clear that the allegedly wrongful behavior could not reasonable be expected to recur.” Since the EPA had given no assurance that it would not reimpose generation-shifting rules, the dispute remained live.

Turning to the merits, the Chief concluded that Congress did not grant the EPA the authority to devise emissions caps based on the generation-shifting approach it took in the CPP. Invoking a handful of administrative-law decisions, Roberts observed that there “certain extraordinary cases, both separation of powers principles and a practical understanding of legislative intent make us reluctant to read into ambiguous statutory text the delegation claimed to be lurking there.” Under this so-called “major questions doctrine,” an agency seeking to exercise authority over, well, major questions, must point to “something more than a merely plausible textual basis for the agency action.” “The agency instead must point to clear congressional authorization for the power it claims.” The Chief felt that this was just such an extraordinary case, making it appropriate to doubt that “Congress implicitly tasked [the EPA], and it alone, with balancing the many vital considerations of national policy implicated in deciding how Americans will get their energy.” As the Chief noted, Section 111(d) was really meant as a “gap filler” to cover certain emissions not addressed in Section 111’s other delegations of power. He found it unlikely that Congress intended in this “long-extant, but rarely used” gap-filling statute to provide the EPA with “unheralded power representing a transformative expansion of its regulatory authority.” Proceeding with “skepticism toward EPA’s claim that Section 111 empowers it to devise carbon emissions caps based on a generation shifting approach” the Chief looked to whether the EPA could “point to clear congressional authorization to regulate in that manner.” The EPA pointed only to its authority to establish emissions caps using BSERs—the “best system of emission reduction . . . adequately demonstrated.” But the Chief did not believe that the word “system” in this grant of authority constituted the sort of clear authorization required for the EPA to exercise power on a grid-wide basis. That said, the majority declined to explicitly hold that the EPA cannot require grid-wide measures to reduce emissions, as the Trump-era EPA had itself concluded. The Chief found it notable that the EPA had for decades limited itself to regulation of individual sources, but found no need to reach the question whether it could go further. Because the “best system of emission reduction” identified in the CPP was outside the scope of its authority under Section 111(d), the

Justice Gorsuch wrote separately (joined by Alito) to offer some additional observations about the major-questions doctrine. As he noted, the Court had adopted many “clear-statement” rules for interpreting statutes, which assume that, absent a clear statement otherwise, Congress intends for its laws to operate within established Constitutional bounds, and not to test them. The major-questions doctrine works in the same way to protect the Constitution’s separation of powers. Where an agency claims the power to resolve a matter of great economic and political  significance, it is appropriate for the courts to demand a clear delegation of that power from Congress. After providing a lengthy defense of the doctrine and observations on how to apply it, Gorsuch concluded that the EPA’s claim of power to effectively force coal- and natural-gas plants to cease operating altogether and shift production to cleaner sources was undoubtedly a major question that and that the EPA could not point to a clear delegation of that authority.  

Justice Kagan took the pen for the dissenters, accusing the majority of stripping the EPA “of the power Congress gave it to respond to the most pressing environmental challenge of our time.” Noting that “[t]his Court has obstructed EPA’s effort [in the CPP] from the beginning,” Kagan argued that “[t]he limits the majority now puts on EPA’s authority fly in the face of the statute Congress wrote.” While the majority found it implausible that Congress had authorized the EPA to regulate emissions through generation shifting, Kagan felt that is exactly what Congress did when it “broadly authorized EPA in Section 111 to select the ‘best system of emission reduction’ for power plants.” No one disputes tat generation shifting is indeed the “best system,” so as a matter of pure textualism, Congress plainly authorized the EPA to use it in setting emission-reduction standards. Kagan further took the majority to task for going out of its way to eliminate the EPA’s authority to require generation shifting even though there was really no live case or controversy concerning the CPP, itself. The rule was not in effect and the EPA had already indicated that it would be replaced. Moreover, even though the CPP had not gone into effect, “market forces alone [had] caused the power industry to meet the Plan’s nationwide emissions target—through exactly the kinds of generation shifting the Plan contemplated.” So, despite not needing to reach the question, the majority went out of its way to apply the “major questions doctrine,” which Kagan criticized as unprecedented and incoherent. As she observed, the major-questions doctrine is a departure from the normal kind of textualism that the Court (and in particular its conservative majority) has tended to extoll. What sorts of questions are “major” enough to require resort to the major-questions doctrine? And what sort of delegation is clear enough to satisfy it? A true textualist would see the phrase “best system of emissions reduction” and be done with this case. But the “current Court,” she lamented, “is textualist only when being so suits it. When that method would frustrate broader goals, special canons like the ‘major questions doctrine’ magically appear as get-out-of-text-free cards.” The dissent closed by observing that the administrative state, using its subject-matter expertise had “helped to build a modern Nation. Congress wanted fewer workers killed in industrial accidents. It wanted to prevent plane crashes, and reduce the deadliness of car wrecks. It wanted to ensure that consumer products didn’t catch fire. It wanted to stop the routine adulteration of food and improve the safety and efficacy of medications. And it wanted cleaner air and water.” But these issues were only addressed “because Congress gave broad-ranging powers to administrative agencies, and those agencies then filled in—rule by rule by rule—Congress’s policy outlines.” The majority’s opinion, though, prevents congressional authorized agency action to curb carbon emissions and effectively appoints the Court—rather than Congress or the expert agency—as “the decisionmaker on climate policy.”

While the Biden Administration would surely count West Virginia as a serious loss, it ended the term with a win. In Biden v. Texas (No. 21-954),the Court sanctioned the Administration’s rescission of the Trump-era Migrant Protection Protocols (“MPP”)—colloquially known as the “Remain in Mexico” policy. MPP provided that certain non-Mexican nationals who had been detained attempting to enter the United States by land would be returned to Mexico pending the results of their removal proceedings.

In 2021, the Biden administration terminated MPP via a Department of Homeland Security memorandum. Texas and Missouri brought suit and secured a nationwide injunction in the district court ordering DHS to continue implementing MPP. The district court held that DHS had violated the Immigration and Nationality Act (“INA”) (more on that below) and the Administrative Procedure Act (“APA”), and vacated DHS’s memorandum. After the government failed to obtain a stay of the injunction, the parties proceeded to appellate briefing. But while the appeal was pending, DHS released a second memorandum again announcing MPP’s termination. Over the objections of the government, the Ninth Circuit affirmed, agreeing with the district court that DHS’s action violated the INA and holding that DHS’s second memorandum was not a new and separately reviewable final agency action. The Court granted cert and expedited consideration of the appeal.

In a 5-4 decision, the Court reversed and remanded. Chief Justice Roberts penned the majority opinion, which Justice Breyer, Sotomayor, Kagan, and Kavanaugh joined. The questions before the Court were whether (1) DHS’s rescission of MPP violated the INA  and (2) the government’s second PPM termination was a valid final agency action. But before addressing these directly, the Court began by addressing jurisdiction. Section 1252(f)(1) of the INA provides that only the Supreme Court “shall have jurisdiction or authority to enjoin or restrain the operation of” several immigration-enforcement laws, including INA Section 1225, the relevant statute here. As the district court is not the Supreme Court, it plainly violated Section 1252(f)(1) by ordering injunctive relief. Nevertheless, the Court held that Section 1252(f)(1) had no bearing on the Court’s subject matter jurisdiction—“Section 1252(f)(1) no doubt deprives the lower courts of ‘jurisdiction’ to grant classwide injunctive relief,” wrote the Chief Justice, “[b]ut that limitation poses no obstacle to jurisdiction in this Court.”

Turning to the merits, the Chief analyzed Section 1225(b)(2)(C) (the “contiguous-territory return” tool), which provides: “In the case of an alien … who is arriving on land … from a foreign territory contiguous to the United States, the [Secretary] may return the alien to that territory pending a [removal] proceeding.” This provision, the Court held, means exactly what it says: the government “may return the alien.” The Chief rejected one of the dissenting views (there were two), which relied on a separate INA provision stating that “if the examining immigration officer determines that an alien seeking admission is not clearly and beyond a doubt entitled to be admitted, the alien shall be detained for a [removal] proceeding.” These dissenters asserted that if the government failed to detain pursuant to Section 1225(b)(2)(A), then it had no alternative but to utilize Section 1225(b)(2)(C)’s contiguous-territory return. The majority disagreed, holding that the contiguous-territory return authority is discretionary “and remains discretionary notwithstanding any violation of section 1225(b)(2)(A).” Not only did the historical context of the statute confirm this interpretation (not to mention the fact that “no administration has ever used section 1225(b)(2)(C) to return all such aliens that it could not otherwise detain), but a different interpretation would have “foreign affairs consequences.” Forcing the government to implement MPP imposed a “significant burden” on the Biden administration’s ability to conduct diplomatic relations with Mexico, particularly given that MPP applies to non-Mexican nationals whom the United States cannot unilaterally return to Mexico. Finally, the Court noted that parole, under Section 1182(d)(5)(A), was another option afforded to DHS for the processing of applicants for admission.

The Chief next addressed whether DHS’s second memoranda terminating MPP was a “final agency action” and concluded that it was. He characterized DHS’s second memoranda as a new agency action, not merely a fuller explanation of DHS’s first memoranda. In reaching this conclusion, Roberts emphasized that the second memoranda was an “agency statement … designed to implement, interpret, or prescribe law or policy,” under 5 U.S.C. § 551(4), and was not a post hoc rationalization of the first memoranda. He also rejected claims that DHS acted improperly or in bad faith and failed to proceed with a sufficiently open mind. Nor did the government’s decision to appeal the district court’s injunction bear on whether the second memoranda was final agency action. Having held that the Biden administration’s rescission of MPP did not violate Section 1225 and that the second memoranda did constitute final agency action, the Court reversed and remanded, instructing the district court to consider in the first instance on whether the second memoranda was arbitrary and capricious under the APA.

Justice Kavanaugh authored a concurring opinion, suggesting that courts should be deferential to the executive’s foreign policy and foreign relations judgment when there is insufficient detention capacity and returning noncitizens to Mexico is not feasible.

Justice Alito, joined by Justices Thomas and Gorsuch, dissented. As previewed above, these dissenters emphasized the word “shall” in Section 1225(b)(2)(A), arguing that detention is mandatory unless the government returns an alien to a contiguous territory or releases him or her on “parole” on a case-by-case basis. Alito accused DHS of violating the clear terms of the law by ignoring the options available to it and “simply releas[ing] into this country untold numbers of aliens who are very likely to be removed if they show up for their removal hearings.” He further argued that the second memoranda was not a final agency action that could be reviewed in the first instance by the Court of Appeals. Finally, Alito would also not have addressed the jurisdictional issue, due to inadequate briefing.

Justice Barrett also dissented. She actually agreed with the majority’s analysis of the merits, but not its decision to reach them. She would have remanded to let the lower courts address the jurisdictional question as an initial matter. Justices Thomas, Alito, and Gorsuch joined her dissent “as to all but the first sentence” (i.e., her statement that she agreed with the Court’s merits analysis).

Finally, in a decision only hospital administrators have been anxiously awaiting, the Court in Becerra v. Empire Health foundation (20-1312) clarified the formula for calculating a hospital’s “Disproportionate Share Hospital adjustment” (better known as the “DSH adjustment”) to the hospital’s inpatient Medicare rate. In a 5-4 decision with an interesting line-up, the Court approved the Department of Health and Human Services (HHS’s) method of calculating the DSH adjustment.

Hospitals are generally paid a flat rate for inpatient services provided to Medicare patients, which is supposed to equal the cost of providing such services by an efficiently operated hospital. (We’re told most hospitals would disagree that the rate in fact covers such costs.) That rate is subject to certain hospital-specific adjustments, including the DSH adjustment. The DSH adjustment is intended to provide extra compensation to hospitals who serve a disproportionate percentage of low-income patients. The formula for determining a hospital’s DSH adjustment (if any) is determined by adding the “Medicare fraction” and the “Medicaid fraction.” The Medicare fraction is calculated by taking “the number of a hospital’s patient days” attributable to low-income patients “who (for such days) were entitled to benefits” under Medicare and dividing that number by the total number of a hospital’s patient days for all individuals “who (for such days) were entitled to benefits” under Medicare. As Justice Kagan put it: “The numerator is the number of patient days attributable to Medicare patients who are poor. The denominator is the number of patient days attributable to all Medicare patients. Divide the former by the latter to get the fraction ‘expressed as a percentage.’” That fraction is then added to the Medicaid fraction, which is determined by a similar bit of division, to arrive at the “disproportionate-patient percentage,” which is used to determine whether a hospital will receive a DSH adjustment and, if so, how large it will be. In the overall calculation, greater weight is given to the Medicare fraction, presumably because the formula is used to determine a Medicare payment.

The issue presented in this case is highly technical: Whether individuals who were eligible for Medicare coverage because they were over 65 or disabled, but whose care for certain days was not actually paid for by Medicare because they had coverage by other insurance or because they had reached a payment cap, should be included in the Medicare fraction. An HHS regulation issued in 2004 includes those patients, on the theory that they remain “entitled to [Medicare Part A] benefits” generally, even if not for those specific inpatient hospital days. While the impact on any given hospital in any given year could vary, because these individuals (who were often covered by private insurance) were removed from the numerator and the denominator of the Medicare fraction, HHS’s interpretation tended to decrease the low-income Medicare fraction and thus, decrease payments to hospitals. Respondent Empire Health Foundation challenged the HHS regulation as being inconsistent with the Medicare statute. The Ninth Circuit agreed with Empire, concluding that the phrase “entitled to [Medicare Part A] benefits” means that a patient must have a right to a payment from Medicare, whereas a different phrase (“eligible for”) was used to calculate the Medicaid fraction.

The Supreme Court reversed, through an unusual 5-4 split. Justice Kagan took the pen for the majority, joined by Justices Thomas, Breyer, Sotomayor and Barrett. In the majority’s view, HHS’s current interpretation was sound. (Consistent with other recent cases, the majority reached this conclusion without mentioning Chevron deference.) Under the Medicare Act, “entitled to benefits” has a well-understood meaning—that an individual is over 65 or has a qualifying disability. The fact that payment may not be covered for a specific day of care does not undercut the fact that the individual is, generally speaking, still entitled to Medicare benefits, just as a person would not be uninsured just because their insurance didn’t cover a specific service or had reached a cap. Empire argued that the parenthetical phrase “(for such days)” meant that an individual must be entitled to Medicare payments for each patient day in the hospital. But Justice Kagan concluded that the parenthetical was merely meant to clarify that if, say, the individual was under 65 when they began their hospital stay (and thus not entitled to Medicare benefits at that time), but turned 65 later, only the days after the patient turned 65 would count in the Medicare fraction. The parenthetical was not, she stressed, intended to fundamentally change the meaning of “entitled to benefits” under Medicare that phrase is used throughout the Medicare Act.

The dissent, led by Justice Kavanaugh, disagreed. HHS, Kavanaugh noted, had long interpreted the statute to exclude patients not entitled to Medicare for a particular hospital day before switching course in 2004, presumably to save money. In his view, HHS had it right the first time. The obvious interpretation of individuals who “for such days” were “entitled” to Medicare benefits was that Medicare would actually pay for such services on those days. It made no sense in his view to include individuals whose care, for example, was being paid for by private insurance. 

Interestingly, and consistent with its approach in other administrative-law cases this term, neither the majority nor the dissent mentioned Chevron deference in coming to their conflicting conclusion. (Justice Kagan did allude to the doctrine in her West Virginia dissent, but did not apply or defend it.) Perhaps, as it did with last week with the Lemon test, the Court will someday reveal that Chevron was “long ago abandoned” without actually overruling it.

So there you have it: 63 decisions in a truly momentous term. While it will be hard for the New Nine (with Justice Jackson aboard as of yesterday) to make the same waves in OT22 as the Old Nine did in OT21, there are a number of potential blockbusters on the docket already, including: Moore v. Harper (No. 21-1271) and Merrill v. Milligan (21-1086), redistricting cases that could have a significant impact on the 2024 election; Students for Fair Admissions v. UNC (No. 21-707) and Students for Fair Admissions v Harvard (No. 20-1199), companion cases challenging affirmative action policies in higher education and potentially setting the stage for the reversal of Grutter v. Bollinger (2003); 303 Creative LLC v. Elenis (No. 21-476), a sequel to Masterpiece Cakeshop, where the Court will consider whether Colorado violated a graphic designer’s free-speech rights by requiring her to cater to same-sex weddings; Nat’l Pork Producers v. Ross (No. 21-468), which will address whether California’s animal-welfare regulations on pork producers violate the dormant commerce clause; and Andy Warhol Foundation v. Goldsmith (No. 21-869), which will address what it means for a work of art to be “transformative” for the purposes of fair-use and copyright law.

We look forward to summarizing those and other cases for you next term. Until then, have a Happy Fourth and a happy summer! Our thanks to our appellate colleagues who’ve helped out during the term, particularly in these busy last few weeks: Aaron Bayer, Jeff Babbin, Kim Rinehart, Jenny Chou, Anjali Dalal, Ariela Anhalt, Evan Bianchi, Michael Rondon, Sean Vallancourt, and Greg Antil.

Tadhg and Dave