Mack Trucks, Inc. v. Agency

Decision Date15 August 2012
Docket NumberNos. 12–1077,12–1099.,12–1078,s. 12–1077
Citation74 ERC 1929,682 F.3d 87,401 U.S.App.D.C. 194
PartiesMACK TRUCKS, INC. and Volvo Group North America, LLC, Petitioners v. ENVIRONMENTAL PROTECTION AGENCY, Respondent. Navistar, Inc., Intervenor.
CourtU.S. Court of Appeals — District of Columbia Circuit

OPINION TEXT STARTS HERE

Held Invalid

40 C.F.R. §§ 86.1104–91, 86.1105–87

On Petitions for Review of a Final Rule of the United States Environmental Protection Agency.

Christopher T. Handman argued the cause for petitioners. With him on the briefs were R. Latane Montague, Sean Marotta, Timothy K. Webster, Samuel I. Gutter, Karen K. Mongoven, Alec C. Zacaroli, and Julie R. Domike.

Michele L. Walter, Attorney, U.S. Department of Justice, argued the cause and filed the brief for respondent.

Cary R. Perlman and Laurence H. Levine were on the brief intervenor Navistar, Inc. in support of respondents.

Before: SENTELLE, Chief Judge, BROWN and GRIFFITH, Circuit Judges.

Opinion for the Court filed by Circuit Judge BROWN.

BROWN, Circuit Judge:

In January 2012, EPA promulgated an interim final rule (IFR) to permit manufacturers of heavy-duty diesel engines to pay nonconformance penalties (NCPs) in exchange for the right to sell noncompliant engines. EPA took this action without providing formal notice or an opportunity for comment, invoking the “good cause” exception provided in the Administrative Procedure Act (APA). Because we find that none of the statutory criteria for “good cause” are satisfied, we vacate the IFR.

I

In 2001, pursuant to Section 202 of the Clean Air Act (“the Act”), EPA enacted a rule requiring a 95 percent reduction in the emissions of nitrogen oxide from heavy-duty diesel engines. 66 Fed.Reg. 5,002 (Jan. 18, 2001). By delaying the effective date until 2010, EPA gave industry nine years to innovate the necessary new technologies. Id. at 5,010. (EPA and manufacturers refer to the rule as the 2010 NOx standard.” 77 Fed.Reg. 4,678, 4,681 (Jan. 31, 2012).) During those nine years, most manufacturers of heavy-duty diesel engines, including Petitioners, invested hundreds of millions of dollars to develop a technology called “selective catalytic reduction.” This technology converts nitrogen oxide into nitrogen and water by using a special aftertreatment system and a diesel-based chemical agent. With selective catalytic reduction, manufacturers have managed to meet the 2010 NOx standard.

One manufacturer, Navistar, took a different approach. For its domestic sales, Navistar opted for a form of “exhaust gas recirculation,” but this technology proved less successful; Navistar's engines do not meet the 2010 NOx standard. All else being equal, Navistar would therefore be unable to sell these engines in the United States—unless, of course, it adopted a different, compliant technology. But for the last few years, Navistar has been able to lawfully forestall that result and continue selling its noncompliant engines by using banked emission credits.1 Simply put, it bet on finding a way to make exhaust gas recirculation a feasible and compliant technology before its finite supply of credits ran out.

Navistar's day of reckoning is fast approaching: its supply of credits is dwindling and its engines remain noncompliant. In October 2011, Navistar informed EPA that it would run out of credits sometime in 2012. EPA, estimating that Navistar “might have as little as three to four months” of available credits before it “would be forced to stop introducing its engines into commerce,” leapt into action.2Resp't Br. at 2–3. Without formal notice and comment, EPA hurriedly promulgated the IFR on January 31, 2012, pursuant to its authority under 42 U.S.C. § 7525(g), to make NCPs available to Navistar.3

To issue NCPs under its regulations, EPA must first find that a new emissions standard is “more stringent” or “more difficult to achieve” than a prior standard, that “substantial work will be required to meet the standard for which the NCP is offered,” and that “there is likely to be a technological laggard.” 40 C.F.R. § 86.1103–87. EPA found these criteria were met. The 2010 NOx standard permits a significantly smaller amount of emissions than the prior standard, so the first criterion is easily satisfied. As for the second, EPA simply said that, because compliant engines (like Petitioners') use new technologies to be compliant, [i]t is therefore logical to conclude ... that substantial work was required to meet the emission standard.” 77 Fed.Reg. at 4,681. Finally, EPA determined that there was likely to be a technological laggard because “an engine manufacturer [Navistar] ... has not yet met the requirements for technological reasons” and because “it is a reasonable possibility that this manufacturer may not be able to comply for technological reasons.” Id.

Having determined that NCPs are appropriate, EPA proceeded to set the amount of the penalty and establish the “upper limit” of emissions permitted even by a penalty-paying manufacturer. The IFR provides that manufacturers may sell heavy-duty diesel engines in model years 2012 and 2013 as long as they pay a penalty of $1,919 per engine and as long as the engines emit fewer than 0.50 grams of nitrogen oxide per horsepower-hour. Id. at 4,682–83. This “upper limit” thus permits emissions of up to two-and-a-half times the 0.20 grams permitted under the 2010 NOx standard with which Navistar is meant to comply and with which Petitioners do comply. See id. at 4,681.

EPA explained its decision to forego notice and comment procedures by invoking the “good cause” exception of the APA, id. at 4,680, which provides that an agency may dispense with formal notice and comment procedures if the agency “for good cause finds ... that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest,” 5 U.S.C. § 553(b)(B). EPA cited four factors to show the existence of good cause: (1) notice and comment would mean “the possibility of an engine manufacturer [Navistar] ... being unable to certify a complete product line of engines for model year 2012 and/or 2013,” (2) EPA was only “amending limited provisions in existing NCP regulations,” (3) the IFR's “duration is limited,” and (4) “there is no risk to the public interest in allowing manufacturers to certify using NCPs before the point at which EPA could make them available through a full notice-and-comment rulemaking.” 77 Fed.Reg. at 4,680.

Petitioners each requested administrative stays of the IFR, protesting that EPA lacked good cause within the meaning of the APA. Petitioners also objected to the substance of the NCP, arguing that EPA misapplied its own regulatory criteria for determining when such a penalty is warranted, and that EPA arbitrarily and capriciously set the amount of the penalty and the “upper limit” level of permissible emissions. EPA denied those requests. Petitioners promptly filed an emergency motion with this Court to expedite review, which we granted.

II

Navistar, which has intervened on behalf of EPA, claims Petitioners lack standing to challenge the IFR. EPA does not make such a claim but, of course, we have the independent “obligation to satisfy [ourselves] of our own jurisdiction before proceeding to the merits. Dominguez v. UAL Corp., 666 F.3d 1359, 1362 (D.C.Cir.2012).

Navistar's sole argument is that Petitioners' lack procedural standing. We have no need to reach this question, however, since Petitioners clearly have standing as direct competitors of Navistar: they allege the IFR “authorizes allegedly illegal transactions that have the clear and immediate potential to compete with [their] own sales.” Sherley v. Sebelius, 610 F.3d 69, 72–73 (D.C.Cir.2010). Navistar admits it is using NCPs to sell competitive engines, see Navistar Motion, at 3, so this injury is anything but conjectural. Petitioners' injury is also “clear[ly] traceable to the IFR which authorizes that allegedly illegal competition, and is redressable by a vacatur of the IFR. Sherley, 610 F.3d at 72. Finally, because “NCP provisions mandate that penalties ... remove any competitive disadvantage to manufacturers whose engines or vehicles achieve the required degree of emission reduction,” Petitioners' “interest in avoiding anticompetitive injury plainly falls within the zone of interests Congress sought to protect.” Nat'l Petrochem. & Refiners Ass'n, 287 F.3d at 1148. Even Navistar does not suggest otherwise in its brief.

We therefore proceed to the merits.

III

Petitioners argue first that Section 206 of the Act requires notice and comment; alternatively, they claim EPA lacked good cause in any event. The APA provides that, [e]xcept when notice or hearing is required by statute,” an agency is relieved of its obligation to provide notice and an opportunity to comment “when the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.” 5 U.S.C. § 553(b)(B).4

A

Is notice or hearing expressly required by statute? Section 206(g)(1) of the Act, 42 U.S.C. § 7525(g)(1), says that NCPs shall be provided “under regulations promulgated by the Administrator after notice and opportunity for public hearing.” According to Petitioners, this is an express requirement of notice and comment that bars EPA from even invoking the good cause exception in this case. Read alone, this language seems to support their argument. But we cannot read one subsection in isolation. Davis v. Mich. Dep't of Treasury, 489 U.S. 803, 809, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989). The rest of Section 206(g) clearly reveals, as EPA points out, that this requirement applies only to the very first NCP rule—which set out the regulatory criteria governing future NCPs—not for each and every NCP subsequently promulgated. Because EPA's position is...

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