NATURAL RESOURCES DEFENSE COUNCIL, SIERRA CLUB, CENTER FOR BIOLOGICAL DIVERSITY, STATE OF CALIFORNIA, STATE OF MARYLAND, STATE OF NEW YORK, STATE OF PENNSYLVANIA, STATE OF VERMONT, Petitioners,
NATIONAL HIGHWAY TRAFFIC SAFETY ADMINISTRATION, JACK DANIELSON, in his capacity as Acting Deputy Administrator of the National Highway Traffic Safety Administration, UNITED STATES DEPARTMENT OF TRANSPORTATION, ELAINE CHAO, in her capacity as Secretary of the United States Department of Transportation, Respondents, ASSOCIATION OF GLOBAL AUTOMAKERS, ALLIANCE OF AUTOMOBILE MANUFACTURERS, INC., Intervenors.
Argued: April 12, 2018
review these consolidated petitions for review of a final
rule published by the National Highway Traffic Safety
Administration indefinitely delaying a previously published
rule increasing civil penalties for noncompliance with
Corporate Average Fuel Economy standards. Because we find
that the agency lacked statutory authority to indefinitely
delay the effective date of the rule, and because we find
that the agency, in promulgating the rule, failed to comply
with the requirements of the Administrative Procedure Act, on
April 23, 2018, we GRANTED the petition for review and
VACATED the rule. We indicated that an opinion would follow
in due course.
FEIN (Irene Gutierrez, Michael E. Wall, on the brief),
Natural Resources Defense Council, San Francisco, CA, for
Environmental Petitioners Natural Resources Defense Council,
Sierra Club, and Center for Biological Diversity.
C. WU, Deputy Solicitor General (David S. Frankel, Barbara D.
Underwood, Monica Wagner, on the brief), for Barbara D.
Underwood, Attorney General, State of New York, New York,
N.Y., for State Petitioner State of New York.
Zaft, Deputy Attorney General (David A. Zonana, on the
brief), for Xavier Becerra, Attorney General, State of
California, Los Angeles, CA, for State Petitioner State of
H. Landis-Marinello, Assistant Attorney General, for Thomas
J. Donovan, Jr., Attorney General, State of Vermont,
Montpelier, VT, for State Petitioner State of Vermont.
Jonathan Scott Goldman, Executive Deputy Attorney General,
for Josh Shapiro, Attorney General, Commonwealth of
Pennsylvania, Harrisburg, PA, for State Petitioner
Commonwealth of Pennsylvania.
M. Sullivan, Solicitor General, for Brian E. Frosh, Attorney
General, State of Maryland, Baltimore, MD, for State
Petitioner State of Maryland.
THOMAS BYRON III (Chad A. Readler, Mark B. Stern, Steven G.
Bradbury, Paul M. Geier, Jonathan Morrison, and Emily Su, on
the brief), Washington, D.C. for Respondents.
Z. Jones (Matthew A. Waring, on the brief), Mayer Brown LLP,
Washington, D.C. for Intervenor Alliance of Automobile
C. Parrish (Justin A. Torres, Jacqueline Glassman, on the
brief), King & Spalding LLP, Washington, D.C. for
Intervenor The Association of Global Automakers.
Richard L. Revesz (Bethany A. Davis Noll, Jason Schwartz, on
the brief), New York, N.Y. for The Institute for Policy
Integrity at New York University School of Law as Amicus
Curiae in support of Petitioners.
Before: WINTER, POOLER, and PARKER, Circuit Judges.
AND PARKER, CIRCUIT JUDGES.
frequently passes statutes that either permit or require
agencies to assess monetary penalties against parties who
fail to comply with the law. After the bill is passed,
however, the initial dollar amount of the penalty often
remains unchanged. Due to inflation, this stasis in the law
has the practical effect of decreasing the value of the
penalty over time.
2015, Congress passed a law requiring federal agencies to
adjust their civil penalties to account for inflation, so
that those imposed by agencies today have approximately the
same value as they did at the time the penalties were
initially created by Congress. Federal Civil Penalties
Inflation Adjustment Act Improvement Act of 2015 (the
"Improvements Act"), Bipartisan Budget Act of 2015,
Pub. L. 114-74, § 701, 129 Stat. 584, 599 (2015)
(codified at 28 U.S.C. § 2461 note). This Act applied to
all executive agencies across the federal government. The Act
provided a clear method for agencies to use when calculating
the new dollar amounts and gave them approximately six months
to issue interim final rules announcing the new penalties.
now asked to determine whether the National Highway Traffic
Safety Administration ("NHTSA") acted unlawfully
when it published a rule indefinitely delaying the effective
date of the new civil penalty promulgated by the agency
several months prior. The delayed rule would have increased
civil penalties for violations of corporate average fuel
economy ("CAFE") standards. Petitioners in this
action (the "Petitioners") claim NHTSA exceeded its
statutory authority in indefinitely delaying a rule
implemented pursuant to the clear Congressional directive in
the Improvements Act. Petitioners also claim that the agency
violated the requirements of the Administrative Procedures
agree with Petitioners on both issues and conclude
NHTSA's actions were unlawful. On April 23, 2018, we
issued an Order vacating the rule and granting the petition
for review, and indicated an opinion would follow in due
Energy Policy and Conservation Act
1975, Congress passed the Energy Policy and Conservation Act
("EPCA"). The Act was passed in the immediate wake
of the 1973-74 oil crisis and its purpose was to reduce the
likelihood of another severe energy crisis through the
creation of programs focused on energy regulation, energy
conservation, and, most relevant to this case, "improved
energy efficiency of motor vehicles, major appliances, and
certain other consumer products." 42 U.S.C. §
6201(5). The focus of EPCA's effort to improve the energy
efficiency of cars was the implementation of the CAFE
standards for vehicles, which established fuel economy
targets for different categories of vehicles, measured in
miles per gallon. EPCA directs the Secretary of
Transportation to "prescribe [the CAFE standards] by
regulation" "[a]t least 18 months before the
beginning of each model year." 49 U.S.C. §
32902(a). Further, "[e]ach standard shall be the maximum
feasible average fuel economy level that the Secretary
decides the manufacturers can achieve in that model
year." Id. The Secretary of Transportation has
delegated these responsibilities to the NHTSA Administrator.
49 CFR § 1.95(a).
EPCA's statutory scheme includes civil penalties for
"a manufacturer that violates a standard prescribed for
a model year under section 32902 of this title [the CAFE
standards]." 49 U.S.C. § 32912(b). The total civil
penalty is calculated by multiplying the civil penalty rate
by the number of tenths of mile per gallon by which the
car's fuel efficiency fell below the prescribed standard.
Id. That number is then multiplied by the number of
failing automobiles produced by the manufacturer, less any
credits received by the manufacturer for exceeding the
standards in prior years. Id.
EPCA was passed in 1975, the CAFE penalty was set at $5.00
per tenth of an mpg. Pub. L. No. 94-163, 508(b)(1)(A), 89
Stat. 871, 913, ("Any manufacturer whom the Secretary
determines under subsection (a) to have violated a provision
of section 507(1), shall be liable to the United States for a
civil penalty equal to (i) $5 for each tenth of a mile per
gallon by which the average fuel economy of the passenger
automobiles manufactured by such manufacturer during such
model year is exceeded by the applicable average fuel economy
standard established under section 502(a) and (c), multiplied
by (ii) the total number of passenger automobiles
manufactured by such manufacturer during such model
year."); see also 49 U.S.C. § 32912(b).
Inflation Adjustment Acts and Rulemaking
1975 and 1997, the penalty was never increased from $5. In
1997, a 10 percent adjustment raised the penalty to $5.50,
and the penalty remained at that amount until 2016, when
NHTSA published an interim final rule raising the penalty to
$14 per tenth of an mpg. Civil Penalties, 81 Fed. Reg. 43,
524 (July 5, 2016). The 2016 adjustment was driven by passage
of the Improvements Act, which "require[d] agencies to
make an initial catch up adjustment to the civil monetary
penalties they administer through an interim final rule and
then to make subsequent annual adjustments for
inflation." Id. NHTSA explained that the
Improvements Act established the formula it used to set the
new penalty, which was accordingly increased to $14 per tenth
of an mpg. Id. at 43, 525-26. Because the new
penalty was issued as an interim final rule (per the
statutory directive), NHTSA set an effective date of August
4, 2016, but continued to accept petitions for
reconsideration until August 19, 2016. Id. at 43,
August 1, 2016, the Alliance of Automobile Manufacturers and
the Association of Global Automakers (who are intervenors in
this action) petitioned NHTSA for partial reconsideration of
the interim final rule. On August 3, 2016, Jaguar Land Rover
North America also petitioned for reconsideration of the
interim final rule. These industry petitioners conceded that
"NHTSA was obligated to take some action in response to
the Improvements Act" and "that NHTSA [was] not
empowered to exempt the CAFE program from this
directive." Joint App'x at 31. The industry
petitioners instead raised concerns about the method used to
calculate the new penalty and its retroactive application.
December 28, 2016, NHTSA published the final rule in the
Federal Register, which modified the prior interim final rule
in response to concerns raised by the industry petitioners in
their requests for reconsideration. Civil Penalties, 81 Fed.
Reg. 95, 489 (Dec. 28, 2016). Specifically, NHTSA determined
that it would not apply the new penalty rates retroactively
and would instead delay the implementation of the penalty
rate until model year 2019. Id. at 95, 491. The
final rule explained:
NHTSA believes this approach appropriately harmonizes the two
congressional directives of adjusting civil penalties to
account for inflation and maintaining attribute-based,
consumer-demand-focused standards, applied in the context of
the presumption against retroactive application of statutes.
This decision increases civil penalties starting with the
model year that manufacturers, in this particular instance,
are reasonably able to design and produce vehicles in
response to the increased penalties.
Id. at 95, 491 (internal citation omitted). The
final rule included an effective date of January 27, 2017.
Id. at 95, 489.
Subsequent Agency Actions
January 20, 2017, Reince Priebus (at the time, the Assistant
to the President and Chief of Staff), issued a Memorandum for
the Heads of Executive Departments and Agencies, regarding a
"regulatory freeze pending review." Joint App'x
at 55. The memo directed that,
With respect to regulations that have been published in the
OFR but have not taken effect, as permitted by applicable
law, temporarily postpone their effective date for 60 days
from the date of this memorandum, subject to the exceptions
described in paragraph 1 [regarding emergencies and other
"urgent circumstances"], for the purpose of
reviewing questions of fact, law, and policy they raise.
Where appropriate and as permitted by applicable law, you
should consider proposing for notice and comment a rule to
delay the effective date for regulations beyond that 60-day
Id. Accordingly, on January 30, 2017, NHTSA
published a final rule in the Federal Register that
"temporarily delay[ed] for 60 days the effective date of
the rule entitled 'Civil Penalties' published in the
Federal Register on December 28, 2016." Civil Penalties,
82 Fed. Reg. 8, 694 (Jan. 30, 2017). On March 28, 2017, NHTSA
published a new Final Rule delaying the effective date of the
December 28, 2016 final rule by an additional 90 days. Civil
Penalties, 82 Fed. Reg. 15, 302 (Mar. 28, 2017). On June 27,
2017, NHTSA yet again delayed the effective date of the rule
by an additional 14 days. Civil Penalties, 82 Fed. Reg. 29,
009 (June 27, 2017).
12, 2017, NHTSA published a final rule in the Federal
Register that is the subject of the current petitions for
review. This rule, which we refer to as the "Suspension
Rule," stated that, "As of July 7, 2017, the
effective date of the final rule published in the Federal
Register on December 28, 2016, at 81 FR 95489, is delayed
indefinitely pending reconsideration." 82 Fed. Reg. 32,
139 (July 12, 2017). NHTSA explained:
NHTSA is now reconsidering the final rule because the final
rule did not give adequate consideration to all of the
relevant issues, including the potential economic
consequences of increasing CAFE penalties by potentially $1
billion per year, as estimated in the Industry Petition.
Thus, in a separate document published in this Federal
Register, NHTSA is seeking comment on whether $14 per tenth
of an mpg is the appropriate penalty level for civil
penalties for violations of CAFE standards given the
requirements of the Inflation Adjustment Act and the Energy
Policy and Conservation Act (EPCA) of 1975, which authorizes
civil penalties for violations of CAFE standards. Because
NHTSA is reconsidering the final rule, NHTSA is delaying the
effective date pending reconsideration.
Id. at 32, 139-40. The notice of reconsideration and
request for comments was published in the Federal Register
immediately after the notice of indefinite delay. Civil
Penalties, 82 Fed. Reg. 32, 140, 32, 140-45 (July 12, 2017).
consist of several states (the "State Petitioners")
and various environmental organizations (the
"Environmental Petitioners"). On September 7, 2017,
the environmental petitioners sought review of the Suspension
Rule on the ground that it had been unlawfully promulgated.
The next day, the state petitioners also sought review.
we consider the merits of the challenges to NHTSA's
action, we consider whether State Petitioners and
Environmental Petitioners have ...