H & H TIRE CO. v. United States Dept. of Transportation

• Decision Date: 05 December 1972
• Docket Number: No. 71-1935.,71-1935.
• Citation: 471 F.2d 350
• Parties: H & H TIRE COMPANY, Petitioner, v. UNITED STATES DEPARTMENT OF TRANSPORTATION et al., Respondents.
• Court: U.S. Court of Appeals — Seventh Circuit

471 F.2d 350 (1972)

H & H TIRE COMPANY, Petitioner, v. UNITED STATES DEPARTMENT OF TRANSPORTATION et al., Respondents.

No. 71-1935.

United States Court of Appeals, Seventh Circuit.

Argued April 5, 1972.

Decided December 5, 1972.

Hammond E. Chaffetz, Fred H. Bartlit, Jr., and Tefft W. Smith, Kirkland & Ellis, etc., Chicago, Ill., for petitioner.

Alan S. Rosenthal, Thomas J. Press, Lawrence G. Schneider, Frank Berndt, Michael P. Peskoe, Attys., Dept. of Justice, Washington, D. C., for respondents.

Before PELL, STEVENS, and SPRECHER, Circuit Judges.

PELL, Circuit Judge.

Petitioner H & H Tire Company, an independent tire retreader, seeks judicial review of Federal Motor Vehicle Safety Standard No. 117 (Standard 117)¹ issued by the Department of Transportation pursuant to the National Traffic and Motor Vehicle Safety Act of 1966, 15 U.S.C. § 1381 et seq. Standard 117 establishes specified processing and performance requirements for retreaded pneumatic passenger tires.² On petitioner's motion, this court, pending its review, stayed the enforcement of the standard, scheduled to have become effective January 1, 1972.

The purpose of the 1966 Safety Act is "to reduce traffic accidents and deaths and injuries to persons resulting from traffic accidents," 15 U.S.C. § 1381. Toward that end, Congress conferred upon the Secretary of the Department of Transportation the power to establish federal motor vehicle safety standards,³ which are defined as "minimum standards for motor vehicle performance, or motor vehicle equipment performance . . .," 15 U.S.C. § 1391(2). The Secretary in turn delegated this authority to respondent National Highway Traffic Safety Administration (Safety Administration). The Act requires compliance with the Administrative Procedure Act (the A.P.A.), 5 U.S.C. § 501 et seq.

When it was engaged in informal rulemaking procedures, 5 U.S.C. § 553, that resulted in the issuance of Standard 117, the Safety Administration received comments reflecting a difference of opinion about the kind of rule the Administration should adopt. Some interested parties preferred a performance standard which would test the performance of completed retreaded tires regardless of their method of manufacture. Others advocated a processing standard setting forth approved methods and processes by which tires should be retreaded. Those favoring performance standards maintained that retreaded tires could and should be expected to meet the same performance standards established for new tires. Standard 117 in its final form reflects this point of view and incorporates five laboratory performance tests that are part of the safety standard for new tires, Standard 109.⁴

In December 1971, after the Safety Administration failed to amend Standard 117 so as to obviate their objections to the inclusion of two of Standard 109's performance tests, H & H Tire Company, several other independent retreaders, and the American Retreaders' Association, Inc. instituted suit in the District Court for the Northern District of Illinois to have Standard 117 declared invalid and its enforcement enjoined. A week later, the plaintiffs voluntarily dismissed the action, and H & H Tire Company filed the present petition for review.⁵

Petitioner here urges that Standard 117 must be set aside because it allegedly is in excess of statutory authority and was fashioned without observance of the procedures required by law. Petitioner's attack on the substantive validity of the standard centers on its incorporation of Standard 109's "high speed" and "endurance" tests, which were developed originally for new tires.⁶ The issuance of Standard 117 was allegedly procedurally improper because the Safety Administration failed to provide the "concise general statement of the standard's basis and purpose" required by Section 4 of the A.P.A., 5 U.S.C. § 553.

I

The scope of our review is prescribed by Section 10 of the A.P.A., now 5 U.S.C. §§ 701-706.

"When the issue on appeal is whether a rule made in informal proceedings under A.P.A. § 4, 5 U.S.C. § 553 meets the criteria of Section 10, the court must necessarily go about the application of that standard in a manner unlike its review of findings of fact and conclusions of law compiled in a formal proceeding A.P.A. §§ 7, 8, 5 U.S.C. §§ 556, 557.

"This exercise need be no less searching and strict in its weighing of whether the agency has performed in accordance with the Congressional purposes. . . . The paramount objective is to see whether the agency, given an essentially legislative task to perform, has carried it out in a manner calculated to negate the dangers of arbitrariness and irrationality in the formulation of rules for general application in the future." Automotive Parts & Accessories Ass\'n, Inc. v. Boyd, 132 U.S.App.D.C. 200, 407 F.2d 330, 338 (1968).

If the requirements of Section 10 have not been satisfied, we must "hold unlawful and set aside the agency action. . . ." A.P.A. § 10(e), 5 U.S.C. § 706.⁷

The Safety Act provides that a proposed standard is to be "practicable," to "meet the need for motor vehicle safety,"⁸ to be based upon the consideration of relevant, available motor vehicle safety data,⁹ and to be "reasonable, practicable and appropriate" for the particular item of motor vehicle equipment regulated, 15 U.S.C. §§ 1392, 1395. Petitioner H & H Tire contends that Standard 117 satisfies none of these mandatory criteria for a proposed motor vehicle safety regulation.

The House debate on its proposed safety bill suggests that by "practicable" the legislators meant that all relevant factors be considered by the agency, "including technological ability to achieve the goal of a particular standard as well as consideration of economic factors." 112 Cong.Rec. 19648 (Aug. 17, 1966). The Report of the Senate Commerce Committee recommending passage of the Senate's version of the safety act, which was the basis for the version ultimately enacted, stated: "The committee recognizes . . . that the Secretary will necessarily consider in the issuance of standards reasonableness of cost, feasibility and adequate lead time." 2 U.S. Code Cong. & Adm.News, 89th Cong., 2d Sess., 1966, p. 2714.

Petitioner refers us to evidence in the record¹⁰ that production retread tires cannot comply with Standard 117. With one significant exception, tests by the tire industry revealed substantial rates of failure for retreads on the endurance and the high speed tests. The combined failure rates were 28% on the endurance test and 17% on the high speed test. Only the Tire Retreading Institute, a division of the National Tire Dealers and Retreaders Association, Inc., found that 100% of the tires it tested passed. As petitioner points out, however, the record does not establish whether the few tires tested by the Institute were randomly selected production retreads or were new tire casings simply buffed and retreaded. Although tests conducted by the Safety Administration apparently had varying results, the failure rates there were also not insignificant.

The Government points out that some retreaders have admitted they might be able to redesign their tires so that they would be more likely to pass the high speed and endurance laboratory tests.¹¹ We cannot agree that these statements prove that Standard 117 satisfies Congress's intent that a safety standard be both technologically and economically feasible. The respondents refer us to no analyses of the costs of such design changes nor to determinations of how long it would take the retreading industry to begin production of the redesigned retreads.

Standard 117 and the statute under which it was promulgated require every producer of retreaded tires to certify that each retreaded passenger tire it manufactures to sell or introduce into interstate commerce conforms to the standard. The Safety Act provides for a civil penalty of up to $1000 for each separate violation and a maximum penalty of $400,000 for any related series of violations. 15 U.S.C. §§ 1397, 1398. In light of the not negligible failure rate of retreads as presently designed on the two challenged tests and the possibility that the industry's best efforts might be insufficient to insure prompt compliance with Standard 117, the penalties established by the Act might have a considerable economic impact on the retreading industry.

These considerations, taken alone, do not conclusively establish that the issuance of Standard 117 violates Section 10 of the A.P.A. We agree with the Government that "the fact that a government regulation may cause economic hardship to a party does not make such regulation unreasonable." The deleterious economic effect on the industry of required compliance with Standard 117 might be permissible if retreads unquestionably were major safety hazards and if compliance with the standard clearly enhanced retreads' safety under on-the-road conditions. However, it appears to be a fair statement from the record that, except for excessive wear (bald or thin tires), tires in general, retreaded tires included, pose no significant safety problem.¹² Also, we have some doubts whether Standard 117 meets the need for motor vehicle safety as required by the authorizing statute. The purpose of the regulation was to provide the public with retreaded passenger car tires capable of performing safely under modern driving conditions, 35 F.R. 4136, 36 F.R. 7315. The respondents can cite little evidence in the administrative record in support of their assertion that the challenged tests are appropriate to predict the safety of retreads in road performance — that is, "correlation" — and, thus, to achieve the valid goal announced by the Safety Administration. Indeed, studies by the Administration itself suggest the need for further research on the degree to which Standard 109's tests correlate with road testing results.

Thus, we cannot conclude from the record before us that the respondents adequately...