In Ohio v. EPA, SCOTUS reinforces powerful role of judiciary in agency oversight

As has been widely discussed, the administrative state took quite a shellacking this last SCOTUS term. But as I noted earlier, it wasn’t just the elimination of Chevron deference in Loper Bright (see this PubCo post) or administrative enforcement proceedings seeking civil penalties in SEC v. Jarkesy (see this PubCo post).  There were at least a couple of other cases this term that contributed to the drubbing.  One of them, Corner Post, Inc. v. Board of Governors of the Federal Reserve System, had the effect of extending the statute of limitations under the Administrative Procedure Act (see this PubCo post).    Another case,  Ohio v. EPA, in which SCOTUS put a temporary hold on the “good neighbor” provision of the Clean Air Act because EPA failed to “reasonably explain” its action, might also be worth your attention.  In Ohio, Justice Neil Gorsuch, writing for the majority, concluded that enforcement of EPA’s rule should be stayed because the challengers were likely to prevail on the merits.  Why? Because EPA had provided an inadequate explanation for the continued application of the emission control measures in the plan in response to comments. Where have we heard this “failure-to-explain” theory recently?  How about Chamber of Commerce of the USA v. SEC, vacating the SEC’s share repurchase rule for, among other things, failure to respond to petitioners’ comments (see this PubCo post) or even National Association of Manufacturers v. SEC, vacating the 2022 rescission of certain proxy advisor rules for arbitrarily and capriciously failing to provide an adequate explanation to justify its change (see this PubCo post).  Justice Amy Coney Barrett dissented, joined by Justices Sonia Sotomayor, Elena Kagan and Ketanji Brown Jackson, contending that the majority opinion “risks the ‘sort of unwarranted judicial examination of perceived procedural shortcomings’ that might ‘seriously interfere with that process prescribed by Congress.’” As characterized by Professor Nicholas Bagley of the University of Michigan Law School in Michigan Law, in its “broad strokes,” the dissent asserted that “courts shouldn’t be in the business of fly-specking lengthy notice-and-comment records,” especially with the benefit of hindsight. The question, he continued, “is whether the agency has behaved arbitrarily and capriciously, and that’s a pretty demanding standard.” With this decision, SCOTUS amplifies the increasingly powerful role of the judiciary in overseeing federal agencies, adding to the decisions this term seeking to rein in the administrative state.

Majority opinion. To understand the case, we need to learn a little about the Clean Air Act. That Act is implemented through a “federal-state collaboration,” with the States having “primary responsibility” for developing State Implementation Plans, referred to as SIPs. Under the “Good Neighbor Provision” of the Act, state plans must prohibit emissions that interfere significantly with attainment or maintenance by other States of relevant air-quality standards. As described by the majority, if the States fail to design a compliant plan to achieve air-quality goals under the Clean Air Act, the federal government can step in and issue a Federal Implementation Plan, or FIP, for the noncompliant state. In this instance, the federal government “announced its intention to reject over 20 States’ plans for controlling ozone pollution.  In their place, the government sought to impose a single, uniform federal plan.  This litigation concerns whether, in adopting that plan, the federal government complied with the terms of the Act.”

As described in the majority opinion, after a revision of standards in 2015, States were required to submit new SIPs.  After two years, in 2022, EPA proposed to disapprove 23 of the SIPs for failure to adequately address the Good Neighbor Provision and sought public comment on the disapprovals. During that public comment period, EPA proposed a single FIP applicable to all 23 States.  According to the majority, commenters warned that EPA’s approach assumed in its calculations and modeling that “the FIP would apply to all covered States.  But what happens if some or many of those States are not covered?” That was apparently a real possibility.  If some States were not included under the FIP, applicants contended, new calculations and modeling would be required to reassess the cost-effectiveness thresholds and selected emissions-control measures. When EPA issued the final FIP, in response to the possibility that States might drop out, EPA included a severability provision but provided that the rule would continue in place for the remaining States.  But “EPA did not address whether or why the same emissions-control measures it mandated would continue to further the FIP’s stated purpose of maximizing cost-effective air-quality improvement if fewer States remained in the plan.” Ultimately, stays were issued for 12 SIPs, accounting for “over 70 percent of the emissions EPA had planned to address through its FIP.” A number of the remaining states (and industry groups) challenged EPA’s decision as arbitrary and capricious, requesting a stay of enforcement of the FIP. The D.C. Circuit denied relief, and the plaintiffs appealed.

Whether to issue a stay turned on the question of whether the applicants were likely to succeed on the merits. According to the majority, an “agency action qualifies as ‘arbitrary’ or ‘capricious’ if it is not ‘reasonable and reasonably explained.’…. [A court] must ensure, among other things, that the agency has offered a ‘satisfactory explanation for its action[,] including a rational connection between the facts found and the choice made.’”  The majority concluded that “EPA’s final FIP likely runs afoul of these long-settled standards.” Why?  The problem, as conceived by the majority, stemmed from the absence of a “reasoned response” from EPA to the issue raised in comments. Severability provision notwithstanding, the majority maintained, “EPA’s response did not address the applicants’ concern so much as sidestep it.”  Rather, in response to comments, “EPA needed to explain why it believed its rule would continue to offer cost-effective improvements in downwind air quality with only a subset of the States it originally intended to cover.” EPA also contended that “no one raised that concern during the public comment period”; the majority, however, asserted that, while it may not have been the identical argument, “EPA had notice of the objection the applicants seek to press in court.”

To the dissent’s contention that the problem raised by the applicants was not sufficiently important “to warrant a reasoned reply from the agency because the methodology EPA employed in its FIP ‘appear[s] not to depend on the number of covered States,” and that the lack of a reasoned explanation was harmless, the majority responded that “if the government had arguments along these lines, it did not make them,” thereby forfeiting those arguments.

Dissent.  To the dissent, applicants’ challenge was unlikely to succeed on the merits.  The majority, Barrett contended, granted “emergency relief in a fact-intensive and highly technical case without fully engaging with both the relevant law and the voluminous record.  While the Court suggests that the EPA failed to explain itself sufficiently in response to comments, this theory must surmount sizable procedural obstacles and contrary record.” Among other things, she contested the majority’s claim that EPA was warned in comments that “its emissions limits might change if it covered fewer States, but… failed to respond.”  Rather, she maintained, “commenters merely criticized EPA’s decision to propose a FIP before its SIP disapprovals were final.  EPA responded that this sequencing was ‘consistent with [its] past practice in [its] efforts to timely address good neighbor obligations.’” The dissent found it “difficult to see how this comment raised with ‘reasonable specificity’ the objection that the removal of some States from the final plan would invalidate EPA’s cost-effectiveness thresholds and chosen emissions-control measures.  That is not how EPA understood it.” 

The dissent viewed EPA’s response as likely adequate. According to the dissent, a “rule is arbitrary and capricious if the agency ‘entirely failed to consider an important aspect of the problem.’”…  But we will ‘uphold a decision of less than ideal clarity if the agency’s path may reasonably be discerned.’  Given the explanations and state-agnostic methodology apparent in the final rule and its supporting documentation—and the paucity of comments specifically raising the issue—EPA may well have done enough to justify its plan’s severability.”  More specifically, she challenged the majority’s contention that the FIP relied “on an ‘assumption that [it] would apply to all covered States.’”  Not the case, she said. Rather, both the final rule and its supporting documents, as well as subsequent EPA denials of petitions for reconsideration, showed that EPA had explained and later confirmed that its methodology was based on nationwide data for the relevant industries and did “not depend in any way on the number of states included.”

In addition, she questioned the likelihood that EPA’s response reflected a failure to address an “important aspect of the problem.” EPA’s response was almost 1,100 pages—apparently that wasn’t enough for the majority.  Significantly, in the view of the dissent, “[r]equiring more from EPA risks the ‘sort of unwarranted judicial examination of perceived procedural shortcomings’ that might ‘seriously interfere with that process prescribed by Congress.’”

What’s more, she argued, the majority overlooks the “stringent harmless-error rule” in the Clean Air Act, which would prevent a rule from being vacated unless the “errors were so serious and related to matters of such central relevance to the rule that there is a substantial likelihood that the rule would have been significantly changed if such errors had not been made.” Citing a 2017 paper from Professor Bagley, she contended that “this provision appears ‘tailor-made to undo’ any ‘rigid presumption of vacatur’ that might apply in other contexts.”

While the majority attempted to make a case for forfeiture, the dissent contended that it was actually the majority’s failure-to-explain argument that was “largely absent from applicants’ briefs…. Given that applicants’ theory has evolved throughout the course of this litigation, we can hardly fault EPA for failing to raise every potentially meritorious defense in its response brief.” She would have exercised discretion to consider the harmless-error rule.

The Court, she concluded, “seizing on a barely briefed failure-to-explain theory,” issued the stay, justifying its decision on the basis of “an alleged procedural error that likely had no impact on the plan.  So its theory would require EPA only to confirm what we already know: EPA would have promulgated the same plan even if fewer States were covered.  Rather than require this years-long exercise in futility, the equities counsel restraint.”