Fifth Circuit Review-Reviewed: Inaugural Edition, by Shane Pennington
When I saw that this blog had added a regular feature on administrative-law happenings in the Ninth Circuit, I knew it was time to propose a similar D.C. Circuit-Review-Reviewed-style column for the Fifth Circuit. I already report on important administrative law decisions from the Fifth Circuit (as well as other topics) on my own blog, so compiling a monthly highlight reel for Fifth Circuit Review-Reviewed updates felt like a natural progression. Happily, the editors were as excited about the idea as I was, so from now on, you can expect monthly reports on the Fifth Circuit as perceived by an administrative law nerd.
As Aaron Nielson has pointed out on multiple occasions, if you want to stay on the cutting edge of administrative law, you can’t afford to sleep on the Fifth Circuit. It is, after all, the court that brought you Bowles v. Seminole Rock & Sand, Skidmore v. Swift, Christenson v. Harris County, and City of Arlington v. FCC (to name a few). And it continues to turn out fascinating and important decisions today, as April’s noteworthy decisions demonstrate.
State Farm Every [Chevron] Step of the Way
In Southwestern Electric Power Co. v. EPA, the Fifth Circuit vacated and remanded EPA’s final rule updating its effluent limitation guidelines (ELGs) for steam-electric power plants. If you’re familiar with this area of law, you know what’s coming: a deep dive into the world of flue gas desulfurization, leachate, bottom ash transport water, gassification wastewater, and electrostatic precipitators. But check out how Judge Duncan (joined by Judges Haynes and Ho) introduces the issue:
Steam-electric power plants generate most of the electricity used in our nation and, sadly, an unhealthy share of the pollution discharged into our nation’s waters. To control this pollution, the Clean Water Act, 33 U.S.C. § 1251 et seq., empowers the Environmental Protection Agency to promulgate and enforce rules known as “effluent limitation guidelines” or “ELGs.” Id. §§ 1311, 1314, 1362(11). For quite some time, ELGs for steam-electric power plants have been, in EPA’s words, “out of date.” 80 Fed. Reg. 67,838. That is a charitable understatement. The last time these guidelines were updated was during the second year of President Reagan’s first term, the same year that saw the release of the first CD player, the Sony Watchman pocket television, and the Commodore 64 home computer. In other words, 1982. See id. (noting ELGs were “promulgated and revised in 1974, 1977, and 1982”). The guidelines from that bygone era were based on “surface impoundments,” which are essentially pits where wastewater sits, solids (sometimes) settle out, and toxins leach into groundwater. Id. at 67,840, 67,851. Impoundments, EPA tells us, have been “largely ineffective at controlling discharges of toxic pollutants and nutrients.” Id. at 67,840. Consequently, in 2005 the agency began a multi-year study to bring the steam-electric ELGs into the 21st century. Id. at 67,841.
In November 2015, EPA unveiled the final rule: the “Effluent Limitations Guidelines and Standards for the Steam Electric Power Generating Point Source Category,” 80 Fed. Reg. 67,838 (Nov. 3, 2015). The rule updates guidelines for six of the wastestreams that issue from plants and foul our waters. Importantly, the Clean Water Act requires setting new ELGs based on the “Best Available Technology Economically Available” or “BAT.” 33 U.S.C. § 1314(b)(2)(B). BAT is the gold standard for controlling water pollution from existing sources. By requiring BAT, the Act forces implementation of increasingly stringent pollution control methods. See NRDC v. EPA, 822 F.2d 104, 123 (D.C. Cir. 1987)(describing the Act as “technology-forcing”).
We consider a challenge to the final rule brought by various environmental petitioners. They target two discrete parts of the rule: the new ELGs for “legacy wastewater” (wastewater from five of the six streams generated before a specific date) and for “combustion residual leachate” (liquid that percolates through landfills and impoundments). These two categories account for massive amounts of water pollution. For instance, leachate alone would qualify as the 18th-largest source of water pollution in the nation, producing more toxic-weighted pound equivalents than the entire coal mining industry. The environmental petitioners’ basic complaint is that EPA set an unlawful BAT for these two categories. Whereas the BAT for the other streams adopts modern technologies, they claim the agency arbitrarily set BAT for legacy wastewater and leachate using the same archaic technology in place since 1982—namely, impoundments. It was as if Apple unveiled the new iMac, and it was a Commodore 64.
The environmental petitioners challenge those portions of the rule under the Administrative Procedure Act and the well-worn Chevron test governing review of agency action. See Chevron, USA, Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). For the reasons discussed below, we agree that the portions of the rule regulating legacy wastewater and combustion residual leachate are unlawful. Accordingly, we VACATE those portions of the rule and REMAND to the agency for reconsideration.
I defy you to find another discussion of “toxic-weighted pound equivalents” half as clear and compelling.
The Court’s 53-page opinion is full of intriguing administrative law puzzles, but I’ll discuss just one of them here. Those interested in a deeper dive should read the lengthier analysis I posted to my own blog.
If you’re reading this, you’re probably familiar with the ongoing—and apparently intractable—debate regarding whether and to what extent Chevron’s two-step framework overlaps with arbitrary and capricious review under the APA. The Court’s opinion in this case lets us know where it stands on that issue right away, declaring that “Chevron review and arbitrary and capricious review overlap[ping] at the margins, specifically at Chevron step two.” While that statement of the “overlap” thesis is pretty mild, the version the Court actually applies in the rest of the opinion is much bolder.
Consider, for example, this passage from a portion of what is supposed to be the Court’s State Farm analysis:
That paradoxical action signals arbitrary and capricious agency action. See, e.g., Chamber of Commerce, 885 F.3d at 382 (“Illogic and internal inconsistency are characteristic of arbitrary and unreasonable agency action.”); see also, e.g., GameFly, Inc. v. Postal Regulatory Comm’n, 704 F.3d 145, 148 (D.C. Cir. 2013) (explaining that agency action “‘illogical on its face’” may be arbitrary and capricious) (quoting Am. Fed’n of Gov’t Emps. v. FLRA v. Fed. Labor Relations Auth., 470 F.3d 375, 380 (D.C. Cir. 2006)). It also strongly suggests that EPA has contravened the plain language of the CWA, which defines BAT as the technology that “will result in reasonable further progress” toward pollutant discharge elimination. 33 U.S.C. § 1311(b)(2)(A) (emphasis added); see also, e.g., Nat’l Crushed Stone, 449 U.S. at 74-75 (discussing “reasonable further progress” component of BAT).
These shortcomings in the agency’s explanations strongly indicate that its BAT decision simply defaults to the outdated BPT standard that has been demonstrated to be a poor performer by the agency’s own analysis. That is antithetical to the statutorily-mandated BAT standard.
Underlying these examples is a pro-overlap view of the interplay between arbitrary-and-capricious review and Chevron that arguably goes far beyond the overlap “at the margins, specifically at Chevron step two,” that Court referenced earlier in its opinion. In particular, by citing the deficiencies in EPA’s explanation for its final rule as “antithetical to the statutorily mandated BAT standard” and “strong” evidence that EPA violated “the plain language of the Act,” the Court seems to hint at an overlap between the arbitrary-and-capricious standard and Chevron Step One. Blurry lines indeed!
The Court’s subsequent Chevron Step One analysis appears to rest on the same bold version of the overlap thesis. Here is the relevant passage:
We agree with petitioners, however, that the leachate rule conflates the BAT and BPT standards in a way not permitted by the statutory scheme. The rule pegs BAT for leachate to the decades-old BPT standard, without offering any explanation for why that prior standard is now BAT. That is flatly inconsistent with the Act’s careful distinction between the two standards.
. . . .
To be sure, we do not say that EPA is precluded by the Act from ever setting BAT equivalent to a prior BPT standard. But given the plain distinction between the two standards marked out in the Act, the agency would at least have to offer some explanation for its decision that speaks to the statutory differences between BAT and BPT.
The Supreme Court arguably applied Chevron to read an explanation requirement into a statute in Michigan v. EPA, but it did so at Step Two. Here, by contrast, the Court appears to do so at Step One. I’m not aware of another example of this phenomenon. If you are, please do share.
In its final comment on the issue, the Court declares that, in its view, more overlap between Chevron and State Farm means a tighter the fit between Chevron and the APA:
Because Chevron step two and the APA share the “arbitrary and capricious” standard, “[t]he APA reflects the principles of Chevron,” and analysis under the two standards proceeds similarly. Nutraceutical Corp. v. Von Eschenbach, 459 F.3d 1033, 1038 (10th Cir. 2006); see also, e.g., PIERCE § 3.6 (suggesting that Chevron step two has “complete overlap” *1029 with APA test of whether a rule adopts an “unreasonable” statutory interpretation) (quoting Animal Legal Def. Fund v. Glickman, 204 F.3d 229, 234 (D.C. Cir. 2000)).
Aditya Bamzai, who has argued extensively (and forcefully if you ask me) that Chevron marked a dramatic departure from the APA, might disagree.
Finally, I’ve posted some thoughts on the connection between this case and Chevron Step One-and-a-Half here.
Inclusive Communities Project, Inc. v. Lincoln Property Co.: What Does Chevron Silence Mean for Robust Causality
Some context is necessary to understand this important case. The Federal Government provides low-income housing tax credits that are distributed to developers through designated state agencies. 26 U.S.C. § 42. Congress has directed States to develop plans identifying selection criteria for distributing the credits. § 42(m)(1). The Texas Department of Housing and Community Affairs (the Department) is the state agency responsible for distributing these credits.
In 2008, the Inclusive Communities Project, Inc. (ICP), a fair housing focused nonprofit, sued the Department, alleging for disparate treatment under the Fair Housing Act (among other things). See 42 U.S.C. §§ 3601, et seq. By that time, the Fifth Circuit had already held that the Fair Housing Act permitted disparate-impact claims, but it had not yet decided what legal standards should apply to such claims. Without any binding Fifth Circuit precedent to follow, the district court applied the Second Circuit’s burden-shifting framework from Huntington Branch, NAACP v. Town of Huntington, 844 F.2d 926 (2d Cir. 1988). Concluding that the Department had failed to make the required showing, the district court ruled in favor of ICP on its disparate-impact claim.
The Department appealed to the Fifth Circuit, but while the appeal was pending, the United States Department of Housing and Urban Development (HUD) passed regulations interpreting the Fair Housing Act to encompass disparate-impact liability. See Implementation of the Fair Housing Act’s Discriminatory Effects Standard, 78 Fed.Reg. 11460 (2013). The regulation also established a burden-shifting framework for disparate-impact claims. 24 CFR § 100.500(c) (2014).
The Fifth Circuit adopted HUD’s regulation and, as a result, held that it was improper for the district court to have placed the burden on the Department to prove there were no less discriminatory alternatives for allocating low-income housing tax credits. The Inclusive Communities Project, Inc. v. Texas Dep’t of Hous. and Cmty. Affairs, 747 F.3d 275, 282 (5th Cir. 2014). The Department filed a petition for certiorari, which listed two questions presented: (1) Are disparate-impact claims cognizable under the Fair Housing Act? and (2) If disparate-impact claims are cognizable under the Fair Housing Act, what are the standards and burdens of proof that should apply? The Supreme Court granted the Department’s petition on the first question and held that the Act does, in fact, permit disparate-impact claims, and, for that reason, affirmed the underlying Fifth Circuit decision.
The fact that the Court had granted cert only on the first question presented didn’t stop the parties from debating the standards and burdens of proof that ought to apply to disparate-impact claims under the Fair Housing Act (the second question presented). HUD and ICP urged the Court to defer to the standard HUD had announced in its recent regulation under Chevron. The Department argued that Chevron deference was inappropriate because HUD’s regulation contradicted the plain text of the Act.
The Supreme Court never addressed the Chevron debate. Instead, without expressly adopting or rejecting HUD’s regulation, the Court simply announced several “safeguards” for lower courts to apply when addressing disparate-impact claims. Texas Dep’t of Hous. & Cmty. Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507, 2523 (2015). Debate in the lower courts predictably ensued. Some courts held that the Supreme Court had adopted HUD’s standard; others insisted that the Court had modified or even rejected it altogether.
In the meantime, ICP was already busy litigating another disparate-impact claim under the Fair Housing Act, this time against the owners and management company of several Dallas-area apartment complexes that had declined to participate in the federal “Section 8” Housing Voucher Program. That case eventually resulted in the April 9, 2019, panel opinion that I’m finally getting around to summarizing here.
ICP alleged that the defendants’ policy of declining to negotiate with or rent to voucher holders disparately impacts black households. Bound by the Fifth Circuit’s earlier decision adopting the HUD regulation, the district court purported to apply the burden-shifting framework HUD endorsed. Prudently, though, the district court also acknowledged the importance of the “safeguards” that the Supreme Court had directed lower courts to apply when assessing disparate-impact claims. Ultimately, the district court concluded that ICP had not carried its burden to make the “robust causation” showing that had featured prominently in the Supreme Court’s ICP opinion. Accordingly, it granted the defendants’ motion to dismiss under Rule 12(b)(6). ICP appealed.
The Fifth Circuit affirmed, but the interesting part of the majority opinion is its conclusion that “the Supreme Court’s opinion in ICP . . . . undoubtedly announce[d] a more demanding test than that set forth in the HUD regulation.” Indeed, the panel majority went further, declaring that “[a] careful review of the Supreme Court’s analysis in ICP . . . reveals its modification of HUD’s test to be both purposeful and significant.” The Court offered several argument in support of that claim, but I found this one far and away the most interesting: “[t]he Supreme Court’s modification of the HUD standard is further evidenced by its omission of any discussion of deference, pursuant to Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984), and its failure to explicitly adopt the HUD regulation.”
Applying the souped-up standard announced by the Supreme Court in ICP, the panel majority agreed with the district court that ICP had not made the “robust” showing of causation required to establish a prima facie case of discrimination under the Fair Housing Act. Judge Davis “strongly dissented.” There’s a lot going on here, and both opinions are worth reading in full. This will almost certainly not be the final word on the issue.
More thoughts on the implications of “Chevron Silence” available here.
A Step-Zero Puzzle
Next up is the Court’s decision in Frey v. United States Department of Health and Human Services, which affirms HHS’s denial of a whistleblower complaint under the American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5, 123 Stat. 115 (Recovery Act or Act). I’d like to begin with the Court’s Step-Zero analysis.
Frey argued that HHS had, among other errors, misapplied § 1553 of the Recovery Act, which governs the use of circumstantial evidence in whistleblower proceedings. Addressing that claim, the Court declared that it would “review [the agency’s] legal conclusions and interpretations of the statute de novo” because “the HHS is not charged with administering § 1553.”
At first blush, this seems like a straightforward application of Chevron Step Zero. The problem is that HHS has the authority to make rules with the force and effect of law under other provisions of the Recovery Act. See, e.g., Recovery Act § 13402(j) (“To carry out this section, the Secretary of Health and Human Services shall promulgate interim final regulations by not later than the date that is 180 days after the date of the enactment of this title.”); id. § 13410(b)(2) (“Not later than 18 months after the date of the enactment of this title, the Secretary of Health and Human Services shall promulgate regulations to implement such amendments.”); see also Modifications to the HIPAA Privacy, Security, Enforcement, and Breach Notification Rules Under the Health Information Technology for Economic and Clinical Health Act, 78 FR 5566-01 (Jan. 25, 2013) (HHS Final Rule implementing Recovery Act). Doesn’t that mean that the Chevron framework should apply after all? See City of Arlington v. FCC, 569 U.S. 290, 306 (2013) (rejecting approaches to Step Zero that “would [require] court[s] [to] search provision-by-provision to determine whether [a] delegation covers the specific provision and particular question before the court”). Am I missing something?
Moving to the merits, the panel rejected Frey’s argument that HHS misinterpreted Section 1553(c)(1)(A)–the Act’s circumstantial evidence provision:
(i) IN GENERAL.—A person alleging a reprisal under this section shall be deemed to have affirmatively established the occurrence of the reprisal if the person demonstrates that a disclosure described in subsection (a) was a contributing factor in the reprisal.
(ii) USE OF CIRCUMSTANTIAL EVIDENCE.—A disclosure may be demonstrated as a contributing factor … by circumstantial evidence, including—
(I) evidence that the official undertaking the reprisal knew of the disclosure; or
(II) evidence that the reprisal occurred within a period of time after the disclosure such that a reasonable person could conclude that the disclosure was a contributing factor in the reprisal
HHS interpreted that language to require both knowledge of the protected disclosure and temporal proximity. Rejecting Frey’s argument to the contrary, the Court held that
Section1553(c)(1)(A)(ii) sets out “two non-exclusive ways” that a petitioner mayuse circumstantial evidence to show that a protected disclosure contributed to a decision to fire him. The types of circumstantial evidence include, but are not limited to, (a) an employer’s knowledge of a protected disclosure or (b) a reasonable temporal relationship between the disclosure and the firing. The statute states that a reprisal “may be demonstrated by circumstantial evidence”; it does not say that whenevereither of those factors is present, a disclosure shall or must be deemed a contributing factor. Congress’s use of “shall” in the immediately preceding subsection bolsters this interpretation.
Shane Pennington practices appellate law at Yetter Coleman LLP in Houston, Texas. He also reports on the administrative-law decisions of the U.S. Court of Appeals for the Fifth Circuit at his blog: admin.law. He has also served as a law clerk to then-Chief Judge David B. Sentelle of the U.S. Court of Appeals for the D.C. Circuit, Judge Jennifer Walker Elrod of the U.S. Court of Appeals for the Fifth Circuit, and then-Chief Judge Royce C. Lamberth of the D.C. District Court. All views are the author’s alone. Follow him on Twitter @admindotlaw.