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Natural Resources Defense Council v. National Highway Traffic Safety Administration

United States Court of Appeals, Second Circuit

June 29, 2018

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,
v.
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

         We 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.

          IAN 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.

          STEVEN 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.

          David 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 California.

          Kyle 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.

          Steven M. Sullivan, Solicitor General, for Brian E. Frosh, Attorney General, State of Maryland, Baltimore, MD, for State Petitioner State of Maryland.

          H. 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.

          Erika Z. Jones (Matthew A. Waring, on the brief), Mayer Brown LLP, Washington, D.C. for Intervenor Alliance of Automobile Manufacturers, Inc.

          Ashley 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.

          POOLER AND PARKER, CIRCUIT JUDGES.

         Congress 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.

         In 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.

         We are 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 Act ("APA").

         We 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 course.

         BACKGROUND

         I. Energy Policy and Conservation Act

         In 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).

         Part of 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.[1] Id.

         When 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).

         II. Inflation Adjustment Acts and Rulemaking

         Between 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, 524.

         On 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.

         On 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.

         III. Subsequent Agency Actions

         On 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 period.

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).

         On July 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).

         Petitioners 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.

         REVIEWABILITY

         Before we consider the merits of the challenges to NHTSA's action, we consider whether State Petitioners and Environmental Petitioners have ...


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