Supreme Court in EPA Delivers a Blow to Washington Regulators

Supreme Court ruling gives leverage to businesses

The Supreme Court yesterday limited the Environmental Protection Agency’s authority to regulate power plant emissions, dealing a significant blow to the Biden administration’s climate change agenda. The ruling is the product of a longstanding campaign by some conservatives to curtail or dismantle the power of the so-called administrative state, the system of agencies that regulate wide areas of the economy. It is already altering the balance of power between businesses and the regulators that oversee them.

The E.P.A. can still regulate emissions, but on a much smaller scale. Writing for the conservative supermajority, Chief Justice John Roberts said the E.P.A. overstepped its bounds by trying to mandate a shift to renewable energy sources. Relying on the “major questions doctrine,” Roberts said the approach had important political and economic consequences that could be addressed only by Congress.

“Chief Justice Roberts’s opinion advanced a central goal of the conservative legal movement, that of curtailing the power of the administrative state. But it did so in a characteristically measured way,” writes Adam Liptak, The Times’s Supreme Court reporter. The opinion echoes a frequent conservative complaint about regulatory overreach, including pandemic-era battles over the C.D.C.’s eviction moratorium and the Occupational Safety and Health Administration’s vaccine mandate.

The ruling creates uncertainty for businesses by upending the regulatory state of play. Whether they involve Big Tech, Wall Street or vaccine mandates, many regulations are now going to be questioned in light of whether they could potentially be negated by the Supreme Court. “It creates a new pressure point,” Scott Nelson, a litigator at the nonprofit consumer advocacy group Public Citizen, told DealBook. And the confusion around rules could slow deal-making, lawyers say.

Former securities regulators were getting ready for this. Last month, a bipartisan group of ex-chairs, commissioners and other S.E.C. officials wrote a letter supporting the agency’s authority to mandate new environmental disclosures and standards, in anticipation of a Supreme Court ruling that would potentially make it easier to call this power into question. They pointed out that the agency had been requiring environmental disclosures for a half-century, and that this was well within the power given to it by Congress. But some Republican lawmakers were celebrating yesterday, and were using the new ruling to challenge that notion.

Reactions from the energy industry took a middle path:

• Pedro Pizarro, the C.E.O. of Edison International, the parent of Southern California Edison, said that most power companies had net-zero commitments they aim to meet by 2050, and that he didn’t see that changing. But he said the country needed “a national strategy” on emissions that will require Congress to act.

• “America’s electric companies are committed to getting the energy they provide as clean as they can as fast as they can,” said Emily Fisher, a senior vice president for clean energy at the Edison Electric Institute, a utility trade organization. She also said that power providers would work with the E.P.A. as it developed new rules.

• The American Petroleum Institute, an energy trade group, said that it would “continue to work with policymakers across the federal government in support of smart regulations” and that its members had made “significant progress” in reducing emissions.

The ruling makes the math for reaching climate goals much harder. Our colleague Coral Davenport told The Times’s Climate Forward newsletter that to meet President Biden’s pledge to cut greenhouse gases 50 percent from 2005 levels by 2030, most experts say the United States would need a combination of new legislation and aggressive regulations. “This decision takes one of those tools and makes it far less effective,” she said.

HERE’S WHAT’S HAPPENING

The stock market is having its worst year in more than 50 years. In the first half of 2022, the S&P 500 dropped nearly 21 percent, but expectations for second-quarter profits, which will be reported in a few weeks, generally remain high.

Meta, Facebook’s owner, says the second half of 2022 will be difficult. “If I had to bet, I’d say that this might be one of the worst downturns that we’ve seen in recent history,” its C.E.O., Mark Zuckerberg, told employees, Reuters reported. In an internal memo, another executive said Meta expected ad revenue to fall because of the economy and more scrutiny of digital privacy.

Russia seizes the rights to a major natural gas project. President Vladimir Putin issued a decree transferring control of the Sakhalin-2 project to a new Russian company, potentially forcing foreign owners including Shell to abandon their stakes. Meanwhile, Citigroup is reportedly in talks to sell some of its Russian operations to local buyers.

Inflation in the eurozone hits another record. Surging energy prices drove the inflation rate to 8.6 percent in June. The new data will bolster plans by the European Central Bank to raise rates for the first time in more than a decade at its upcoming meeting.

A regulator in Puerto Rico suspends operations of a bank owned by Peter Schiff, the outspoken libertarian. The bank, Euro Pacific, has been under investigation for enabling tax evasion. The cease-and-desist order said the bank lacked adequate capital levels and compliance controls.

The airline industry’s Fourth of July test

As the Fourth of July weekend approaches in the U.S., multiple deal makers told DealBook that they really plan to unplug. That is partly a function of the atrophied deal market and partly because of burnout during the pandemic. But for those who plan to fly, there is no guarantee of a reprieve from the delays and cancellations that have recently plagued air travel. And it may be the biggest test yet for the airline industry, which has faced scrutiny from customers, regulators and investors.

The industry has not fully recovered from the depths of the pandemic. Airlines, eager to shed costs and uncertain about the future of travel, halted hiring and doled out early retirement packages. Now, they are scrambling; yesterday, Robert Isom, the American Airlines C.E.O., said the company had offered pilots pay raises totaling nearly 17 percent as part of the fierce talent war. “Most airlines are simply not going to be able to realize their capacity plans because there simply aren’t enough pilots, at least not for the next five-plus years,” Scott Kirby, the C.E.O. of United Airlines, said in April.

Airlines are pinning the blame on the F.A.A., which they say is experiencing its own staffing shortages and Covid-related absences. “When we look at our operations this year, versus three years ago,” Barry Biffle, the Frontier C.E.O., told DealBook this week, “the No. 1 issue that has impacted our operations has been air traffic control.” Airline representatives met with the F.A.A. yesterday to discuss travel disruptions.

Regardless of who is at fault, passengers are mad. They lodged 3,173 complaints against U.S. airlines in April, according to a recent Transportation Department report, over issues like refunds, delays and baggage. That’s nearly three times as many complaints as were made a year earlier. Investors are also unhappy as they consider other challenges, like rising fuel prices. Shares of most major U.S. airlines are down about 30 percent this year.

Members of Congress are threatening action. Some are still upset about the $54 billion pandemic bailout that the industry received. Senator Bernie Sanders, the Vermont independent, is asking Pete Buttigieg, the transportation secretary, to require airlines to pay fines of $15,000 per passenger for certain delays unrelated to weather. House Republicans want Buttigieg to explain the administration’s plans to address the flight mess. Delta’s chief executive, Ed Bastian, posted a note yesterday that seemed to be an effort to get ahead of any holiday travel pain: “If you’ve encountered delays and cancellations recently, I apologize.”

“If you have to ask what it costs, you really can’t afford to do it.”

— Lee Mindel, whose architectural firm has designed the interiors of Gulfstream and Bombardier private jets. Many such jets will be headed to the annual Sun Valley conference next week.

$52 million award for former D.E. Shaw partner

A former Wall Street star who was ousted from a top hedge fund amid accusations of sexual harassment has won a record defamation award against his former firm, D.E. Shaw, and four of the firm’s senior executives.

A panel of arbitrators for the Financial Industry Regulatory Authority, or FINRA, awarded the former D.E. Shaw partner, Daniel Michalow, $52 million in the dispute, which has run for nearly four years. In their decision, the arbitrators said they had concluded that Michalow had not committed “sexual misconduct.”

The award is believed to be the largest in a defamation case overseen by FINRA, which settles employment disputes between brokerage firms and their employees. Unlike in a court case, a settlement in a FINRA arbitration case is binding and cannot be appealed.

The case stems from the early days of the #MeToo movement. When Michalow’s dispute with his firm surfaced, D.E. Shaw had few women in its upper ranks — and, according to a letter Michalow sent to the firm’s founder, a policy that allowed employees to date or have sexual relationships, or both, with fellow employees, regardless of their professional relationship. Last year, D.E. Shaw appointed Maja Hazell as its first head of diversity, equity and inclusion.

Michalow believes he was scapegoated in order to deflect any potential criticism of the firm’s male-dominated culture. “It is possible to defeat power, arrogance and lies with persistence, humility and truth,” Mr. Michalow, who has denied the sexual harassment accusations from the start, said in a statement. He added that the firm and its leaders championed themselves as “social activists and models of corporate governance at my expense.”

A spokesman for D.E. Shaw said in a statement: “We were disappointed by the outcome of the arbitration, and we stand by the decision we made in 2018 to terminate Mr. Michalow’s employment with the firm.”

THE SPEED READ

Deals

• FTX is reportedly in talks to buy the crypto lender BlockFi, which has also been approached by a group that includes a rival, Ledn. (Bloomberg)

• The retailer Kohl’s called off talks to sell its business to the owner of The Vitamin Shoppe, and lowered its earnings forecast. (CNBC)

• The online brokerage eToro is reportedly dropping its SPAC merger plans. (The Information)

Policy

• The F.C.C. approved SpaceX’s Starlink satellite internet for moving vehicles. (Reuters)

• The E.U. agreed to a major regulatory framework to rein in the crypto industry. (CNBC)

Best of the rest

David F. Gallagher contributed to today’s DealBook.

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