Administrative Law/Regulatory - Practice Pointers
Index:
Please contact Tim Means or Michael Klise if you have any questions concerning these cases.
Petition for Review of Rulemaking – Remedy; Statutory Interpretation
02.August.2007
Natural Resources Defense Council v. EPA (D.C. Cir.)
The D.C. Circuit’s decision on five petitions for review of two rulemakings in Natural Resources Defense Council v. EPA, Nos. 04-1385, e al. (June 8, 2007), provides a useful primer on a doctrinal schism within the Circuit concerning the appropriate remedy for a successful challenge to a federal agency rulemaking action. The fractured ruling produced a panel opinion, a concurrence, and a partial concurrence/dissent.
On the merits, the panel agreed with environmental group petitioners that EPA’s definition of “commercial or industrial waste,” as incorporated into another regulatory definition, conflicted with the plain language of § 129 of the Clean Air Act (“CAA”), 42 U.S.C. § 7429. EPA had argued that the underlying statutory language was ambiguous, inasmuch as the CAA lacked definitions of certain terms and therefore gave EPA the discretion to define them. The court disagreed, noting that “the lack of a statutory definition of a word does not necessarily render the meaning of a word ambiguous, just as the presence of a definition does not necessarily make the meaning clear.” In this instance, a statutory definition the Act did contain was clear and unambiguous and foreclosed EPA’s narrowing regulatory definition of a related term.
As to the remedy, the panel majority concluded that, because the challenged rule conflicted with the plain language of the statute, it – and a related rule that will change substantially as a result of the court’s decision – must be vacated, not simply remanded to EPA. The majority explained that, unlike in other cases in which the D.C. Circuit had left a defective regulation in place pending remand for a clearer explanation or better justification by EPA, in this case the court’s ruling actually foreclosed EPA from promulgating the same rules on remand. Insofar as vacating the rules would result in a lack of standards, the court explained that any party could move to delay issuance of the court’s mandate so the current standards could remain in place or EPA could be allowed a reasonable time to develop interim standards.
Judges Randolph and Rogers wrote separate opinions addressing whether the court should remand the case to EPA without vacating the rules. Judge Randolph opined that remanding and vacating should be the “preferred course” even in a case such as this one, which was not governed by the Administrative Procedure Act’s instruction to “set aside” agency action found to be unlawful (5 U.S.C. § 706(2)). In his view, vacating the rules and then considering a stay motion had distinct advantages over simply remanding: preservation of the adversarial process, leading to a better-informed court decision (because briefs on the merits rarely deal with the remedial question); providing an incentive for the agency to act (because a stay would have time limits, whereas a remand is open-ended); a proper allocation of the burden to the agency to demonstrate why a party should be required to comply with an unlawful rule pending remand; and the preservation of a party’s right to seek Supreme Court review (because, if the court merely remands, under D.C. Circuit case law there is no final judgment to appeal).
Judge Rogers dissented from the court’s ruling on the remedy. In her view, the question of whether to vacate or remand already had been addressed by the parties through supplemental briefing. Further, she read the Circuit’s case law to favor leaving a legally deficient rule in place if vacating it would have serious adverse implications for public health and the environment, which she believed was the case here. She explained that a considerable period of time (possibly “a matter of a few years”) may pass before EPA promulgates revised rules, and that a lengthy or indefinite stay of mandate (Judge Randolph’s solution) was legally problematic under the Federal and Circuit rules. Since the invalidated rules provided at least some protection from hazardous air pollutants and industry was bound to comply with them by an upcoming deadline, she felt they should remain in effect, particularly given the likely delay attendant on promulgating new rules.
Exhaustion of Administrative Remedies; Chevron Doctrine
25.May.2006
Boivin v. U.S. Airways, Inc. (D.C. Cir.)
One unheralded consequence of Chevron doctrine (requiring deference to agency interpretations of ambiguous statutory language) may be that the courts are loath to rule in a case in which the agency has not had an opportunity to consider the applicability of its statutory and regulatory provisions to the matter at bar. The D.C. Circuit’s recent decision in Boivin v. U.S. Airways, Inc., No. 05-5165, 2006 WL 1147746 (May 2, 2006), illustrates how pervasive Chevron can be. In Boivin, the court affirmed the dismissal of suit that raised a pure question of law, on the ground that the plaintiffs had failed to exhaust their administrative remedies before seeking relief in court.
Following a bankruptcy court’s termination of their employee pension plan, retired airline pilots sued the airline and the Pension Benefit Guaranty Corporation (“PBGC”), which was the successor trustee of the plan. PBGC had made an estimated benefit determination at the outset of the successorship, but normally required two to three years from the date it took over a plan to issue a formal benefit determination for each plan participant. Without waiting for PBGC to make its final determinations, the plaintiffs sued, alleging that the estimated benefit calculations were erroneously low, and that waiting two to three years for the formal determinations would cause them great hardship (even though they would later be reimbursed for any shortfall).
The plaintiffs alleged four errors in the calculations. PBGC had corrected two of them in the early stages of the litigation (a factor that belied plaintiffs’ claim that an administrative appeal would be futile). The other two centered on the agency’s interpretations of (1) the Employee Retirement Income Security Act (“ERISA”), and (2) PBGC’s own regulations implementing ERISA. The D.C. Circuit declined to reach the merits, and instead agreed with the PBGC that the pilots must await the PBGC’s formal and final determinations, and then must challenge those determinations administratively, before they can seek relief in court.
The decision is noteworthy for two reasons. First, the court’s insistence on exhaustion may seem at odds with the Supreme Court’s 1993 ruling in Darby v. Cisneros, 509 U.S. 137. Under Darby, federal courts do not have authority to require a plaintiff to exhaust available administrative remedies before seeking judicial review under the Administrative Procedure Act (“APA”) if – as was the case here – neither the substantive statute nor agency rules require exhaustion as a condition of judicial review. The difference here, however, was that the pilots were not seeking judicial review under the APA, but rather judicial relief under two provisions of ERISA that authorize private civil action to recover benefits and for equitable relief against PBGC. Thus, whether to require exhaustion was a matter governed by “sound judicial discretion” and apparently not by Darby, which the D.C. Circuit did not cite.
Second, in exercising its “sound judicial discretion,” the D.C. Circuit acknowledged and deferred to “PBGC’s authority to administer the complex program that Congress has entrusted to its care.” The pilots had contended that the usual factors favoring exhaustion did not apply because the case presented pure questions of law concerning the correct interpretation of ERISA and PBGC’s implementing regulations. The court disagreed. Citing Chevron, the court noted that PBGC’s interpretations are entitled to deference and must be upheld if they are reasonable. To evaluate the reasonableness of those interpretations, the court needed a record explaining the agency’s rationale. Requiring exhaustion would generate the necessary record, and would also provide an authoritative statement of the agency’s position by its senior officials. In contrast, allowing the ERISA claim to proceed without exhaustion would leave the court “unable to apply properly . . . the rule of deference.”
Abstention; Preemption; Alternative Ground for Affirmance
16.May.2006
Worldwide Moving & Storage, Inc. v. District of Columbia (D.C. Cir.)
The D.C. Circuit’s recent decision in Worldwide Moving & Storage, Inc. v. District of Columbia, No. 04-7148, 2006 WL 954458 (Apr. 14, 2006), reminds us that Younger v. Harris abstention is very much alive and can even be the basis for dismissal of a federal court action where the plaintiff seeks to enjoin state court proceedings (here, in the local courts of the District of Columbia) on the ground that they are preempted by federal law.
Worldwide, a federally licensed motor carrier, had been enjoined by D.C. Superior Court under the District’s consumer protection law to obtain a surety bond in conjunction with its moving and storage operations. Worldwide appealed that ruling and a related contempt ruling to the D.C. Court of Appeals, and also sued the District in federal court to enjoin the District from imposing the bond requirement. Worldwide’s complaint alleged that federal law preempted the District from regulating its interstate moving operations by requiring the surety bond.
In affirming the lower court’s dismissal of the federal case, the D.C. Circuit held that all three Younger abstention prerequisites were satisfied: (1) the local court proceedings were ongoing; (2) the District had an important interest in enforcing its laws that regulate local movement and storage of household goods; and (3) the preemption defense could be raised and fully litigated in the local court proceedings. The D.C. Circuit cited a decision of the Supreme Court that, except perhaps in the face of a “facially conclusive” preemption claim, even a “substantial” preemption claim is insufficient to require a federal court to intervene in a matter being litigated in state court. The court held that Worldwide’s preemption claim was not “facially conclusive” because the two federal statutes Worldwide had invoked (the Carmack Amendment to the Interstate Commerce Act, 49 U.S.C. § 14706(a)(1); and 49 U.S.C. § 14501(c)(1)-(2)) were inapplicable to the surety bond requirement.
In addition, the case gave the court the occasion to reiterate a basic principle of federal litigation, that a court of appeals may affirm a district court on an alternative ground. Whereas the district court had dismissed the case for Worldwide’s lack of constitutional standing, the D.C. Circuit declined to reach the standing issue and instead disposed of the case on grounds that “equity, comity and federalism” favored abstention in this instance.
Notice and Comment Rulemaking; Record on Remand; Agency Authority Pending Issuance of Mandate
15.May.2006
Chamber of Commerce v. SEC (D.C. Cir.)
In Chamber of Commerce v. Securities and Exchange Commission, 443 F.3d 890 (Apr. 7, 2006), the D.C. Circuit granted a petition for review of a rule that departing SEC Chair Donaldson had rushed through in a few days after a remand from the court on account of a failure of the initial rule to address a couple of points adequately. Rather than reopen the rulemaking to give the public (and the rule-challenger, the Chamber) a chance to make a record on those issues, and in apparent concern that, with the Chair’s departure imminent, the rule might not have the votes to be reissued once the procedural defect had been corrected, the SEC essentially fudged the issues and rushed out a reissuance of the remanded rule without change. The Chamber haled the SEC back to court and the court, in a careful, balanced, and thoughtful piece of administrative law analysis, vacated the new rule, but withheld the mandate for 90 days to give the agency time to reopen the record for comments and perhaps correct the defect, without disrupting the regulated community, most of which had already adapted to the rule.
The opinion is noteworthy because it contains a careful exploration of the rulemaking requirements of the APA § 553(c), insofar as what studies and other documents relied upon by the agency must be noticed for public comment (especially, when can the agency “supplement” the record on remand without allowing public comment), what are the duties of an agency on a rulemaking remand, and when does the failure to notice such materials constitute the prejudice requisite to a successful challenge of procedural deficiencies under § 553(c). Also notable is the court's analysis and ruling that the imminent change in the composition of an agency’s membership does not constitute “good cause” under § 553 for failure to engage in the requisite notice-and-comment process before promulgating a rule.
In addition, the case also presents the separate issue of whether, pending issuance of the court’s mandate, an agency loses authority to consider modifying a rule that has been remanded to it by the court. The court held that the SEC was not disabled from sua sponte considering whether to modify the rule even though the court of appeals’ mandate had not yet issued. The court rejected an analogy to Federal Rule of Appellate Procedure 41, which limits the jurisdiction of a district court while a case is pending on appeal. The D.C. Circuit explained that agencies, unlike federal courts, are not subject to the case-and-controversy limitation in Article III. Whereas it would offend that principle for a district court to exercise jurisdiction over aspects of a case that were still pending before the court of appeals, an agency enjoys broad scope to carry out its mission without Article III constraints, including the authority to address issues identified by the court prior to the issuance of the court’s mandate.
Deference to Agency Statutory Interpretation; Conflict with Prior Judicial Interpretation
08.July.2005
National Cable & Telecommunications Ass'n v. Brand X Internet Services (S. Ct.)
In National Cable & Telecommunications Ass’n v. Brand X Internet Services, the Court on June 27, 2005 upheld the FCC’s interpretation (reversing the Ninth Circuit in the process) of the Communications Act that broadband cable modem companies are exempt from mandatory common carrier regulation. Aside from its substantive significance to cable companies and the telecommunications industry generally, the Court’s 6-3 decision rules on two generic Administrative Law issues of broad applicability. Both rulings give greater license to an agency to change its mind (both on its own and despite even a previous judicial interpretation to the contrary) about what the statutes it administers may require.
The first of these rulings may be primarily a lawyer’s issue, of interest principally to advocates, attacking or defending agency interpretations of statutes they administer. In this ruling, the Court clarified an unsettled issue under its Chevron precedent – whether and to what extent an agency’s interpretation that is inconsistent with its prior interpretation is entitled to deference. In Brand X, the Court held that such inconsistent treatment does not deprive an agency’s interpretation of deference as a permissible interpretation under Chevron Step Two. Any agency’s interpretation which appears inconsistent with its previous interpretation may still be deemed permissible as consistent with the statute, but may nonetheless be struck down as arbitrary and capricious under the Administrative Procedure Act for the agency’s failure to provide a reasoned exploration for its change in interpretation.
Of potentially broader significance to many of the Firm’s clients, and regulated industries across the nation, is the Court’s other, and central, Administrative Law ruling. In reversing the Ninth Circuit for rejecting the agency’s interpretation of the statute, as contrary to precedent in which the Ninth Circuit had adopted a contrary interpretation, the Supreme Court held that the agency’s subsequent interpretation was entitled to judicial deference under Chevron. Clarifying prior decisions that could be read to deny deference to an agency interpretation that is contrary to prior judicial interpretations, the Court explained that:
A court’s prior judicial construction of a statute trumps an agency construction otherwise entitled to Chevron deference only if the prior court decision holds that its construction follows from the unambiguous terms of the statute and thus leaves no room for agency discretion.
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Only a judicial precedent holding that the statute unambiguously forecloses the agency’s interpretation, and therefore contains no gap for the agency to fill, displaces a conflicting agency construction.
The Court’s ruling – if we understand it correctly (and dissenting Justice Scalia certainly assures us that we do) – creates opportunities for reopening what had been settled precedent for decades. That is, if there are unfavorable judicial interpretations of the regulatory statutes which govern our clients’ businesses, those precedents can be administratively overruled by agency officials today. Thus, across the full range of federal governmental regulation – from telecommunications, securities regulation, and healthcare to trade, energy, environmental, occupational safety and health, transportation, and you name it – settled statutory interpretations that may have been difficult or costly to live with may be vulnerable to displacement by a fresh agency interpretation. So long as the adverse precedent was (1) the result of judicial interpretation of a statute and (2) not based on the court’s ruling that it was the only possible interpretation (i.e., that the statute was unambiguous on the issue), the only additional ingredient necessary to complete the recipe for liberation from the adverse precedent is an agency willing to revisit the issue and to conclude that it “would choose a different construction.”
We suggest that you discuss with your clients the opportunities which Brand X presents. In the right circumstances, a legal evaluation and strategic planning process could reap enormous benefits for our clients.
Agency Interpretation; Timing of Petition for Judicial Review; Notice on Agency Web Site
08.November.2004
General Motors v. EPA (D.C. Cir.)
The D.C. Circuit's April 2, 2004, decision in General Motors v. EPA, 363 F.3d 442, is a noteworthy case, particularly in the areas of final agency action and which agency interpretations are subject to judicial review. It also includes a ruling that could, in some cases, be used to close the doors to the courthouse to some petitioners seeking judicial review of agency regulations or other actions that could be deemed to constitute rulemaking. The potential for adverse consequences prompted the posting of this alert.
General Motors v. EPA involved an industry challenge to an agency interpretation which the industry petitioner (in order to obtain judicial review of it) characterized as a de facto rulemaking. The decision includes one novel ruling that could have major adverse consequences by precluding judicial review of certain agency actions under statutes or regulations that set time limits within which judicial review must be sought or forever barred. The decision holds that, under the Resource Conservation and Recovery Act (RCRA), the 90-day statutory period for judicial review of agency rulemaking actions starts running with the publication of the agency's interpretation on its Web site. There is no indication that there was ever any publication of the contested interpretation/de facto regulation. Nonetheless, citing another case where the industry had used the fact of Internet posting by the agency to support its argument that an agency interpretation should be subject to judicial review, despite the agency's contention that the posted interpretation was merely a non-binding guidance document, the court reasoned that notice of the interpretation via the Internet was sufficient to start the running of the 90-day limitations period, despite the lack of Federal Register notice.
Checking agency Web sites may have become something companies and other regulated entities need to do daily. Agency Web site postings may no longer be viewed as a benign public service but may also have legally binding consequences. Although, if this decision is ever used against an agency, attorneys can argue that decision should be limited to its facts, to RCRA, or to cases where the petitioner was deemed to have actual notice of the agency's interpretation, the decision will have a strong impact on legal and business decision-making.
Please contact Tim Means or Michael Klise if you have any questions concerning these cases or similar limitations on judicial review of agency regulations and interpretations.