Industry attorney explains Chevron decision impact on beauty stakeholders

Recently, the US Supreme Court overruled its 1984 decision in Chevron v. Natural Resources Defense Council, which established what was known as the Chevron​ doctrine. Initially viewed as a relatively inconsequential case decision, Chevron ​evolved into a landmark decision and one of the most important rulings on federal administrative law over the past four decades, having been cited over 18,000 times in federal Court, according to independent news source SCOTUSBlog.

For clearer understanding the Chevron decision and the implications of SCOTUS's recent ruling, we spoke to attorney Ann Begley, Chair of Wiley Rein LLP's Food & Drug practice, for her insights.

Chevron's historical significance in administrative law

Regarding the implications of SCOTUS's most recent decision, it is first essential to comprehend Chevron​, Begley began. "The recent Supreme Court decision, Loper (Loper Bright Enterprises v. Raimondo, No. 22-1219, slip op. at 23 (2024)​), represents a dramatic departure from the established two-part test set forth in the 1984 case, Chevron USA Inc. v. Nat. Res. Def. Council, Inc.​​, 467 US 837​ (Chevron​), regarding judicial review of a federal agency's interpretations of federal laws," she explained.

"Under part one of the Chevron ​two-part test, the court would determine whether the statute was unambiguous in its direction to the agency," Begley said. "If the statute were unambiguous, the court, as well as the federal agency, would be required to 'give effect to the unambiguously expressed intent of Congress,' she continued. This means, in other words, that if Congress has not directly addressed the question at the center of a legal dispute, then a court was required to defer to the agency's (for example, the FDA) interpretation of the law as long as its interpretation was considered reasonable.

"However," Begley explained further, "if the statute was silent or ambiguous, the court would then move to part two of the test, which required it to consider whether the agency's interpretation was based on a permissible construction of the statute."

The 1984 Supreme Court held, therefore, that "if Congress left a gap in the law, considerable weight should be given to the agency who was entrusted by Congress to administer that law," she said. This meant that "instead, the court should 'defer' to 'reasonable interpretations' of a statute by the agency," and this deference "was significant for administrative law."

She added that over the past 40 years, "agencies were frequently successful in defending their statutory interpretations, generally set forth in federal regulations when Chevron​ deference was applied."

The Court's most recent ruling in Loper ​has since rejected this doctrine, which Chief Justice John Roberts characterized as "fundamentally misguided." The Justice's instead stated that "the courts cannot delegate their Constitutional duty to interpret laws," said Begley, and "while agency interpretations of law should be afforded great respect, the Court stated that this does not equate to deference."

As a result of this latest ruling, the Justices now hold that "the courts are constitutionally charged with final interpretations of statutes," Begley explained. This means that "the two-part test is gone," and "under Loper, ​federal agencies are now left in the position of convincing courts that their interpretations of law are authorized under the 'best' reading of the statute."

Chevron​, Loper​, and today's cosmetics industry

So, what does this mean for key stakeholders in the cosmetics and personal care products industries? First, "it is important to understand that the Food and Drug Administration (FDA) has issued very few cosmetic regulations" historically, Begley emphasized. "This is because, prior to MoCRA, very few statutory provisions within the Federal Food, Drug and Cosmetic Act (FDCA) were devoted to the regulation of cosmetics," she explained, adding that "further, most cosmetic regulations promulgated by the FDA were implemented well before the 1984 Chevron ​decision."

As a result, she stated, it is "not surprising to learn that a court has never been called upon to determine whether the FDA's cosmetic regulations should be afforded Chevron ​deference."

Today, however, Begley described "several regulations that FDA must​ now promulgate under MoCRA: establishment of standardized testing methods for detecting and identifying asbestos in talc-containing cosmetics, identification of fragrance allergens for purposes of new labeling disclosure requirements, and promulgation of cosmetic good manufacturing practices."

As "these regulations will now be subject to the Loper ​analysis if FDA's statutory interpretations of MoCRA provisions are challenged, this means that FDA will need to convince the court that its final regulation represents the 'best' interpretation of the statute," she explained. As a result, she illustrated, "if the court disagrees with the FDA's interpretation, it can require the FDA to go back to the drawing board," which could "significantly slow down the already slow process of promulgating regulations (even when statutory deadlines apply, as they do in all three of these MoCRA-mandated regulations)."

Further, Begley added, "We can expect that the FDA will be less likely to engage in rulemaking when a statute does not explicitly direct it to do so, because "while FDA has issued regulations in the past based upon its authority under section 701(a) of the FDCA to issue regulations 'for the efficient enforcement of the [FDCA],' there is no longer a reason to go through the process without clear congressional direction to do so, as "it is too time-intensive and resource-intensive to undertake rulemaking only to have that rule challenged in court."

Instead, she said, "FDA is more likely to issue guidance documents to industry," which "reflect the Agency's current thinking regarding the implementation of FDCA requirements, but unlike regulations they are not legally binding." For example, she described, "FDA recently finalized guidance on the cosmetic product facility registration and cosmetic product listing requirements set forth in MoCRA," and while "this FDA final guidance can also be challenged in federal court under Loper​, at least the guidance development process under FDA's good guidance practice regulation is less resource-intensive than rulemaking."

As an aside, she added, "those good guidance practice regulations were congressionally mandated by Congress under the Food and Drug Administration Modernization Act of 1997."

Additionally, she noted, "successful Loper-​challenges to guidance documents could result in FDA reticence to develop even industry-requested guidance."

Future impact, next steps, and other areas of concern

As the Loper​ decision is relatively recent, it will "take years to fully understand [its] impact on federal agency rulemaking and guidance development," Begley asserted, and while "it is expected that challenges to agency regulations will increase at least in the short term" which "may be disruptive to agencies and companies alike, we can hope to better understand how courts will interpret this new standard, and how agencies can effectively work within it."

"As a practical matter," Begley continued, "most FDA-regulated industries, including the cosmetic industry, seek clear direction from the FDA regarding its enforcement posture in order to operate within a well-defined legal framework without fear of disruptive enforcement actions that can impact not only a company's bottom line, but also its reputation." Therefore, she clarified, "companies generally welcome reasonable regulations and/or guidance."

While "most of the MoCRA provisions are self-effectuating, meaning FDA regulation or guidance are not required for FDA to implement or enforce the statutory provisions," she added, "companies should assure they fully understand those self-effectuating legal requirements." This is an important distinction, she said, because "even when laws are self-effectuating, FDA frequently issues guidance when helpful."

For example, she illustrated, "in addition to the cosmetic product registration and listing guidances issued by the Agency, FDA also issued draft guidance on insanitary conditions in the preparation, packing and holding of tattoo inks, and has indicated its plans to issue industry guidance on the MoCRA record access and mandatory recall requirements."

Therefore, she said, "it is very possible that Loper ​may slow down FDA's plans on issuing or finalizing new guidance under MoCRA." As a result, she advised, "if companies have questions on MoCRA's self-effectuating provisions, they should seek out legal counsel for insight on how to best interpret those provisions."

"When rulemaking is required, or FDA decides to engage in guidance development," Begley concluded, "it becomes even more critical post-Loper​ for interested stakeholders to participate actively in the development of these rules and guidances in order to assist the agency in establishing the 'best' interpretation of the MoCRA requirements."

For example, "FDA's June 2023 listening session and request for comments on the development of Good Manufacturing Practices (GMPs) for cosmetic products represented a good opportunity for stakeholder participation in the MoCRA-rulemaking process," she shared.

"There will be more such opportunities for stakeholder participation when the proposed rules for cosmetic GMPs, talc testing, and fragrance allergens issue," Begley concluded, adding that "companies should be sure to actively review and comment on these proposed regulations."