Cooperative Federalism Conundrum: Delegation Can Be Split; Deference Cant

Deference to reasoned agency decision-making is an essential principle of judicial review. Because Congress delegated its regulatory authority to executive agencies and not to Article III courts, the latter has no grounds to second guess the former. There are also practical justifications: Agencies possess expertise and political accountability; the judicial branch of government does not. As a general matter, deference accorded an agencys factual findings and discretionary choices is greater than that given to an agencys statutory constructions, although the latter will not be upset if reasonable. Tellingly, the default standard of review established by the Administrative Procedure Act would overturn an agencys action only if it was arbitrary and capricious. This is a narrow standard that rarely upsets agency determinations. If a congressional delegation of authority to the executive branch of government justifies an Article III Courts respect for agency decision-making, then how is judicial deference affected when Congress splits its grant of power between the State and Federal Government? The Clean Air Act, for example, is a cooperative federalism arrangement, which establishes a StateFederal partnership to improve the nations air quality. Because both sovereigns carry a congressional grant of authority, both possess legitimate claims to judicial deference. Complicating matters further, the State, in exercising its share of congressionally delegated authority pursuant to the Clean Air Act, funds its own implementing agency, which establishes its own administrative code. As a result, each sovereign that is responsible for executing the Clean Air Act can claim a congressional delegation, agency expertise, and political accountabilityi.e., all the trappings of deference. So what happens when State and Federal Governments, in the course of implementing their respective delegations of authority, disagree on factual findings, with billions of dollars in compliance costs at stake? To which sovereign should the courts defer? Its a tricky question, and much depends on the answer. For starters, the principle of deference to agency fact findings, discretionary determinations, and statutory interpretations is a powerful shield for agency decisions running the gauntlet of judicial review. Whichever sovereign carries this escutcheon is much more likely than not to win the day when a court reviews a federalism conflict pursuant to the Clean Air Act. Indeed, the sovereign lacking deference must be ignored. Unlike a Congressional delegation of authority, deference cannot be split. The Supreme Court (the Court) repeatedly has recognized that often there are two or more possible reasonable determinations given the facts at hand, and that reviewing courts should never substitute their own reasonable conclusions for that of the agency. See, e.g., Marsh v. Oregon Natural Resources Council, 490 US 360 (1989), 376-7, Arkansas v. Oklahoma, 503 US 91 (1992), 113, Chevron v. NRDC, 467 US 837, 844. Accordingly, both state and federal agencies could render reasonable, yet different decisions on the same matter. In the case of such a federalism dispute, a reviewing court is in no position to split the difference. It must choose which sovereign merits respect, and which doesnt. Its a zero-sum game.

The purpose of this post is to explore the proper allocation of judicial deference to agency decisionmaking when an Article III court reviews a dispute between State and Federal Governments pursuant to the cooperative federalism regulatory arrangement established by the Clean Air Act. As a guide, this post will reference an ongoing cooperative federalism controversy between many States and the Federal Government, over the Clean Air Acts (the Act) visibility improvement program, known as Regional Haze. Indeed, there are numerous federalism conflicts over the Regional Haze program now pending before Article III Courts, with billions of dollars in compliance costs hanging in the balance.1 Fundamentally, these disputes concern which sovereign merits deference. For now, the controlling case on these Regional Haze disputes is a July 29th decision by a divided panel of the 10th Circuit Court of Appeals, Oklahoma, et al. v. EPA, et al., 723 F. 3d 1201 (2013). Regarding a factual dispute between Oklahoma and EPA, the court deferred to the agency, and cut out the State. As I argue below, the 10th Circuits decision conflicts with the Supreme Courts guidance in Alaska Department of Environmental Conservation v. EPA, 540 US 461 (2004), on the appropriate standard of review a court should adopt when adjudicating a State-Federal conflict pursuant to the Clean Air Act. Admittedly, however, the Courts ADEC decision suffers from severe contradictions, and it was this confusion that facilitated the 10th Circuits decision. The Supreme Court now has a chance to revisit and clarify this federalism issue, as the State of Oklahoma on January 29th filed a petition for writ of certiorari seeking review of the 10th Circuits decision. The Court would be wise to avail itself of this opportunity to overturn the 10th Circuits decision and clear the confusion its ADEC decision has wrought by affirming that the States are the proper recipient of judicial deference when they exercise their congressional delegation of authority under the Clean Air Act.

The Clean Air Acts Especially Convoluted Cooperative Federalism Scheme

The Clean Air Amendments of 1970 (the Act) establish a partnership to improve air quality, one whereby [t]he state proposes and the EPA disposes. See Bethlehem Steel Corp. v. Gorsuch, 742 F. 2. 1028, 1036 (7th Cir. 1984). For most of the Clean Air Acts history, States and the EPA have worked well together. Since 2009, however, there has been a marked shift away from harmonious relations between these co-sovereigns. This transition from cooperative to combative federalism coincides with the administration of President Barack Obama, and is reflected by an increasing assertiveness by EPA over State decisions. Consider, for example, the precipitous increase in the number of federal takeovers of state regulatory programs, known as federal implementation plans, or FIPs. In the twelve years preceding President Obama, EPA promulgated 2 FIPs; in the five years since, the agency has imposed 53 FIPs.
1

See, Utah v. United States Envtl. Prot. Agency et al., No. 13-9535 (10 Cir. Filed Mar. 21, 2013); Martinez et al. v. th th EPA., No. 11-9567 (10 Cir., filed Oct. 21, 2011) (New Mexico); Arizona v. EPA., No. 13-70366 (9 Cir., filed Jan. 31, th 2013); Louisiana Dept of Env. Quality v. EPA, No. 12-60672 (5 Cir., filed September 4, 2012); Michigan v. EPA, No. th th 13-2130 (8 Cir., filed May 22, 2013); Nebraska v. EPA, No. 12-3084 (8 Cir., filed Sept. 4 2012);

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Virtually all of EPAs regulatory takeovers are being challenged by States in various federal courts. But because these federalism disputes are unprecedented and unforeseen by Congress when it crafted the Clean Air Act, there exists precious little statutory guidance as to how Article III courts should conduct judicial review when sovereigns conflict. The Act simply fails to address in any meaningful fashion the standard of review EPA should adopt in exercising its role overseeing regulatory actions taken by States that have EPA-approved air quality programs. As such, a number of these legal challenges now before circuit panels pertain to novel-yet-crucial questions delineating the boundary of power between state and federal governments. Unfortunately for a court reviewing such a federalism dispute, the Clean Air Act establishes an especially convoluted cooperative federalism structure. For starters, the Congress delegated authority unevenly to the state and federal governments. A State that is in non-attainment of a national health standard has less authority (relative to the EPA) than does a State in attainment of that standard.(Compare Clean Air Act Part C and Part D). Similarly, States have greater authority exercising aesthetic regulations than they do for public health regulations. Cooperative federalism under the Clean Air Act is further complicated by the states establishment of parallel legal and administrative structures in the execution of their delegated powers. States, for example, enact enabling statutes authorizing their own air quality agencies, which codify their own regulations, but only after public notice and comment. That reviewing courts have disagreed whether the state or federal version of the Clean Air Act is ascendant is a testament to the confusion wrote by cooperative federalism. See Whose SIP Is It Anyway? State-Federal Conflict in Clean Air Act Enforcement, 18 Wm. & Mary J. Envtl. L. 245. Also, state agencies keep large, professional staffs, funded overwhelmingly by state taxpayers. According to the Environmental Council of States, states typically finance 80% of their delegated federal environmental programs. Thus states boast expertise in dependent of the EPA. This is important, insofar as reviewing courts have before cited an agencys expertise as a practical consideration that militates in favor deference, especially on factual determinations. These factorsthe Acts uneven boundaries of authority between sovereigns, duplicate state-federal implementing regimes, and parallel expertiseconspire to complicate a reviewing courts already difficult job of discerning the authorities delegated by Congress, and, by extension, identifying which sovereign merits deference.

The Supreme Courts Conflicted ADEC Guidance

Ten years ago, in Alaska Department of Environmental Conservation v. EPA, 540 US 461 (2004) (ADEC), the Supreme Court provided conflicted guidance to lower courts on how to review a federalism dispute under the Clean Air Act. At issue in ADEC was a State-Federal disagreement over the EPAs blocking of an air quality permit issued by Alaska to a remote mining operation. Alaska argued that because it issued the permit pursuant to its EPA-approved regulatory program, it was the sole delegated authority to grant permits, and,

therefore, EPA had no oversight powers. By a close 5-4 decision, the Supreme Court disagreed, finding that [Clean Air] Act conferschecking authority on EPA over states exercising their delegated authority. Id. at 469. Crucially, however, the Court majority took pains to respect the Congresss partial delegation of authority to the states, notwithstanding EPAs legitimate oversight role. Noting that the statute grants considerable leeway to states functioning as the permitting authority with initial responsibility, the Court explained that EPA may step in only when a states determination is not based on a reasoned analysis or arbitrary. Id. at 490-1. The Court directed reviewing courts that the underlying question they were to resolve is [w]hether [the States] determination was reasonable. Id. at 494. Of great importance, the ADEC decision clarified that the production and persuasion burdens remain with EPA. Id. In sum, the Court upheld EPAs oversight power, but it did not grant the agency unlimited authority to veto state plans wily-nily. Instead, the Court clarified that the Clean Air Act limits EPAs authority to checking only arbitrary decisions by the States. Seemingly, then, the ADEC majority accorded States all the trappings of deference. The underlying question is whether the State (not the EPA) acted arbitrarily. Moreover, the EPA, despite being the defendant, bore the burden of proof, an arrangement which the Court has subsequently affirmed to be extremely rare. See Schaffer v. Weast, 546 US 49 (2005) at 57. Based on these directions, a lower court easily could assume that it should defer to the States factual findings, policy decisions, and interpretations of ambiguous statutory text when sovereigns disagree. Alas, the ADEC decision quickly contradicted itself. The language described above, which was solicitous of the States, was situated in the third section of the majority opinion. The purpose of section three was to adjudicate whether EPA even had the authority to review a states exercise of its delegated authority under the Clean Air Acts cooperative federalism structure. Upon answering that question in the affirmative, the Court then set about, in the very next section of the opinion (section four), to determine if the Agencys rejection of the States determination was reasonable. And in so doing, the Court extended to EPAs review role the familiar, default standardand ask[ed] whether the Agencys action was arbitrary, capricious. As explained above, the arbitrary and capricious standard is narrow, and highly deferential to agency decision-making. Based on this direction, a lower court easily could assume that it should defer to the EPAs factual findings, policy decisions, and interpretations of ambiguous statutory text when sovereigns disagree. Clearly, the ADEC Court is sending mixed signals. Section three of the majority opinion indicates that the State is the sovereign with ascendant delegation under the Clean Air Act. Thus, the majority appears to direct lower courts that they should defer to the States in a federalism dispute. Yet the very next section of the same majority opinion indicates that courts should defer to the federal government when it exercises its oversight role. At face value, the ADEC decision makes no sense. What gives?

On closer inspection, however, it is possible to discern a thread of logic behind the ADEC majoritys reasoning. To begin with, the Court had no statutory options other than the familiar, default arbitrary and capricious standard of review for agency actions. Indeed, the Court has found that other two possible standards available under the Administrative Procedure Actde novo and substantial evidenceare inappropriate for review of informal rulemakings. See Citizens to Preserve Overton Park, Inc., v. Volpe, 401 US 402 (1971), at 414-5. More importantly, the Court exercised its own advice, and conducted a searching review on its own in order to determine whether Alaskas decision (rather than the EPAs) was reasonable. Critically, the Courts analysis was not influenced by the agency. See ADEC 540 US 461 (2004), at 498-501. In practice, then, the Court appeared to accord ascendant deference to the States, despite its conflicted reasoning. But its impossible to know for sure, due to the fact that the ADEC majority doesnt even bother to acknowledge the fact that its directions contradict. Not surprisingly, the Courts ADEC opinion has engendered confusion in lower courts. When a party before a reviewing court prefers the states interpretation or execution of the Clean Air Act, it cites ADEC Section 3. And when a party prefers the EPAs interpretation/execution of the Act, it cites Section 4. See, e.g., Arizonas & EPAs briefs in Arizona v. EPA., No. 13-70366 (9th Cir., filed Jan. 31, 2013); U.S. EPA, et al., v. Duke Energy Corporation, --F. Supp. 2-- (M.D.N.C. 2013), (In support of their arguments, both parties cite the Supreme Courts decision in [ADEC].) Unfortunately for the States, lower courts have ignored completely ADECs state-friendly guidance. In two enforcement cases, district courts flatly stated that when State and Federal Governments disagree on whose interpretation of implementing regulations is ascendant, the Federal Government prevails. U.S. EPA, et al., v. Duke Energy Corporation, --F. Supp. 2-- (M.D.N.C. 2013); U.S. EPA, et al. v. Alabama Power Company, 372 F. Supp. 2d 1283, at 1291 (U.S.D.C. AL-northern district) (if the decision at hand comes down solely to whose interpretation controls, EPAs or [the States], EPA prevails.). Elsewhere, in non-federalism disputes, lower courts have cited section 4 of the ADEC decision (i.e., the EPA-friendly section) in granting arbitrary and capricious deference to federal agencies. See, e.g., Davis v. Pension Ben. Guar. Corp, 815 F. Supp. 2d 283 (D.D.C. 2011), at 288 FN2; Natural Resources Defense Council, Inc. v. U.S. EPA, 638 F. 3d 1183 (9th Cir. 2011), at 1191 Ive not been able to locate an instance whereby a reviewing court relied on the ADEC Section 3 and its state-friendly language.

EPAs Aggressive Regional Haze Oversight: A Chance for the Supreme Court to Clarify ADEC
The Supreme Court now has an opportunity to clarify its conflicted reasoning in ADEC, as a long simmering Clean Air Act conflict between States and EPA is now ripe for the Courts review. At issue is a Clean Air Act regulation known as Regional Haze. Its purpose is to improve visibility at national parks and federal wilderness areas. (See Clean Air Act 169 A/B). Because it is an aesthetic regulationand not a public health regulationCongress delegated an unusually high degree of

authority to the States relative to the EPA. For public health regulations, EPA establishes national standards, and then States create implementing plans to achieve these standards. (See, generally, Clean Air Act 108-110). The Regional Haze program is different. Instead of the EPA, it is the States to which Congress delegated the authority to establish visibility standards, in the form of Reasonable Progress towards a national goal of pristine air by 2064. (See 40 CFR 51.308(d)(1)). In addition, the statute in unequivocal terms delegates to the State the responsibility to determine the best available emissions controls to achieve this goal. (See Clean Air Act 169(A)(b)(2)(A)). Thus, for Regional Haze, States both establish and implement visibility regulations. There are no other regulatory regimes in the Clean Air Act that accord States these prerogatives. Simply put, the Regional Haze program grants States greater power than any other provision of the Clean Air Act. Despite the States ascendant authority under the Regional Haze provision, EPA since 2009 has taken over 11 visibility programs from the States. The plight of one of these StatesOklahomais indicative of EPAs Regional Haze regime as practiced during the Obama administration. From 2008-2010, the Oklahoma Department of Environmental Quality (Oklahoma DEQ or ODEQ) executed its congressional delegation to improve visibility. As part of this responsibility, ODEQ was required to determine what constituted the best available retrofits to install on four coal-fired power plants operated by Oklahoma Gas & Electric, the States largest investor-owned utility. A key criterion for this discretionary determination is the estimation of compliance costs. To be precise, ODEQ estimated that a technology known as flue gas desulphurization (a.k.a., scrubbers) would cost $1.2 billion to install at the four power plants. On this basis, Oklahoma DEQ ruled out scrubbers as a Regional Haze requirement. EPA, on the other hand, estimated that scrubbers would cost $300 - $600 million. Based on this calculation, EPA rejected Oklahomas finding and imposed a federal plan that required scrubbers. Oklahoma sought judicial review of EPAs Regional Haze takeover before the 10th Circuit Court of Appeals. At issue in Oklahoma, et al. v. EPA, et al., 723 F. 3d 1201 (2013) was a state-federal dispute over a factual determination, the costs of sulfur dioxide scrubbers at four coal-fired power plants. This factual finding, in turn, serves as a factor that must be considered by the State in rendering a certain policy determinationi.e., choosing the best available retrofit to achieve the States Regional Haze goals. Factual findings (like the cost of scrubbers) and discretionary determinations (like choosing the best available retrofit) are the kinds of decisions to which reviewing courts accord agencies substantial deference. In this vein, Oklahoma DEQs professional staff spent 1,000s of hours creating a Regional Haze plan,2 in accordance with state law and administrative code. Their efforts, moreover, were funded overwhelmingly by the Oklahoma taxpayers. Most importantly, ODEQ was operating pursuant to a unique grant of congressional authority, relative to EPA. If the reader would recall the state-friendly language in Section 3 of the Supreme Courts ADEC majority decision, the underlying question facing the 10th Circuit panel was whether Oklahomas cost estimate was reasonable. In light of the substantial deference normally given by courts to complex technical
2

Correspondence with Oklahoma Attorney General office

matters, like estimating the cost of sulfur scrubbers, its likely that Oklahoma would win its lawsuit, if the state received deference. But that wasnt the standard of review chosen by the 10th Circuit. Instead of deciding whether Oklahoma cost estimate was reasonable, the court decided whether EPAs rejection of the states factual finding was reasonable. That is, the 10th Circuit wholly ignored the Supreme Courts solicitude for the States in ADEC section 3, and instead relied solely on ADEC section 4. EPA received all the deference; Oklahoma received none. Even then, it was only by a closely divided decision that the court sided with EPA. The 10th Circuits issued its divided decision on July 29, 2013. It has since become controlling precedent in a suite of State challenges to EPA Regional Haze takeovers. On January 29, the State of Oklahoma filed a petition for writ of certiorari seeking review of a divided 10th Circuit panel decision. On February 6, a broad coalition of industry filed an amicus in support of the State. I understand that a group of States also filed an amicus, but Ive not yet been able to locate it. The Federal Governments response is due at the end of March. Thereafter, the Court will deliberate whether to take the case. Heres to hoping the Supreme Court grants the writ, and then proceeds to overturn the 10th Circuits decision. It is this authors opinion that States merit deference in federalism disputes pursuant to the Clean Air Act in general, and the Regional Haze provision in particular. In a subsequent post, I will address the reasons why States are the proper recipient of judicial deference when sovereigns disagree in how to implement the Clean Air Act.