![Relying on Loper, Fifth Circuit Sends Chevron-based decision Back to District Court, calling ESG Rule into Question](assets/images-t1725077845/1314.jpeg)
On July 18, 2024, the U.S. Court of Appeals for the Fifth Circuit (Fifth Circuit) vacated a decision by the U.S. District Court for the Northern District of Texas (District Court) that upheld the U.S. Department of Labor’s (DOL) 2022 environmental, social and governance (ESG) rule (ESG Rule). The ESG Rule, issued pursuant to President Biden’s Executive Order, “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis,” allows Employee Retirement Income Security Act (ERISA) fiduciaries to give weight to “the economic effects of climate change and other environmental, social, or governance factors” when there are two or more financially equal investment options.
In Utah v. Su, a group of plaintiffs, including numerous states, individual plan participants, and others, challenged the ESG Rule under the Administrative Procedure Act (APA) claiming, among other things, that DOL did not properly justify its departure from prior rulemakings. The District Court upheld the ESG Rule, relying on Chevron, U.S.A., Inc. v. Natural Resources Defense, Inc. (Chevron) to give deference to DOL’s interpretation of ERISA, and finding that DOL’s interpretation that ERISA permits fiduciaries to consider factors not material to financial performance was reasonable.
Following the District Court’s decision, the U.S. Supreme Court overturned Chevron deference in Loper Bright Enterprises v. Raimondo (Loper). Although DOL did not rely on Chevron in its briefing, instead arguing that its reading of ERISA was consistent with the statute and the APA, the Fifth Circuit vacated the District Court’s decision and remanded the case for reconsideration in light of Loper. In doing so, the court made clear that: (1) changes in precedent apply to cases pending on appeal; and (2) appellate courts generally sit as courts “of review, not first view.” The court distinguished district courts, whose role is to answer legal questions in the first instance, from appellate courts, who seldom “break out of [their] appellate mold.” Rather than vacate the ESG Rule altogether, which the justices considered during oral arguments, the Fifth Circuit sent the rule back to the District Court for further consideration.
- Associate
Sara Greenberg assists in advising clients on environmental and land use matters involving the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Endangered Species Act, the ...
Nossaman’s Endangered Species Law & Policy blog focuses on news, events, and policies affecting endangered species issues in California and throughout the United States. Topics include listing and critical habitat decisions, conservation and recovery planning, inter-agency consultation, and related developments in law, policy, and science. We also inform readers about regulatory and legislative developments, as well as key court decisions.
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