Nondelegation on Ice: EPA’s Refrigerant Rule and the DC Circuit’s Constitutional Workaround

Mark Chenowith: If you think that unwritten law doesn’t affect you, think again. Whether you’re a business owner, a professional, just an average citizen – you are unknowingly going to fall under vague and unofficial rules. And when bureaucrats act like lawmakers, they’re really restricting your liberty without the consent of the governed. Welcome to Unwritten Law with Mark Chenowith and John Vecchione. We have a special treat today. We have general counsel at NCLA, Zhonette Brown, joining us to talk about a recent result from the US Court of Appeals for the D.C. Circuit in a case that, Zhonette, you’ve been working on for a couple of years at least, right? This goes back a ways.

Zhonette Brown: In one iteration or another, yes, I have. And thanks for having me on.

Mark Chenowith: Yeah, absolutely. Well, so, the case is Choice Refrigerants v. EPA, and I don’t think we’ve talked about it on the program in a while. So, could you just maybe give a brief synopsis for our listeners as to what the issue is in this case?

Zhonette Brown: Sure, in brief, Congress decided to phase down the use of certain refrigerants, hydrofluorocarbons, and they decided they would do that through a cap-and-trade program, which is gonna reduce the market by 85%. They left it, in our view, up to the EPA how to go about that phasedown so that EPA, for example, set aside part of the market for new entrants. And so, we challenged that delegation to the EPA, that grant of power, under the nondelegation clause, because in our view, the statute and Congress provided no direction to the EPA in how to allocate the market now that it was controlled by EPA.

Mark Chenowith: Right. And so, for our non-lawyer audience, so the non-delegation doctrine comes from Article One, Section One of the Constitution, which gives all legislative power to Congress. And so, it’s not at all clear that Congress can delegate that legislative power, or certainly at least it cannot delegate that legislative power without some metes and bounds around what it’s delegating to a legislative agency. Tell me about the argument that NCLA was making in this case. Why did we think that there wasn’t enough sort of direction around what the agency was told to do?

Zhonette Brown: Congress provided the agency with literally just the cap to how many agencies could be used over time, how it would be phased down in certain steps in certain years, and told them to create a cap-and-trade program. But unlike other cap and trade statutes, or at least one, Congress did not say, “Okay, you’re going to phase down by market share so that the existing market participants will continue to have their same market share. There will just be less produced in total.” So, that’s, for example, what was done under the ozone-depleting substances. Here, Congress said nothing like that, and EPA explicitly took that silence as license to come up with any sort of allocation scheme, including mentioning the idea that maybe they would one day sell allowances specifically for nonuse. And as I mentioned, they specifically took a part of the market to give to new entrants. So, the EPA did not feel like it was at all constrained to stick with market share.

Mark Chenowith: How did the government defend that as sort of being sufficient? Because that really sounds like Congress wasn’t…and in these other statutes, Congress was explicit – use market share, sort of draw things down that way. Here, it sounds like a lot more latitude was given to the agency. Why did the government say that that was okay?

Zhonette Brown: Well, it’s interesting because the government didn’t take as narrow an approach as the court eventually did because the EPA hadn’t actually followed the market share. What the EPA said essentially was because allowances, which are what’s at issue here, what allows you now to participate in the market now that it’s 100% regulated. Because allowances are only relevant to people who participate in the market, we are allowed to issue allowances to people who are in or intend to be in the market. And that was the extent of the EPA’s definition for litigation purposes of an intelligible principle.

It’s important to note that prior during rule-making, EPA acknowledged that they were free, basically had almost unlimited discretion, to distribute allowances.

Mark Chenowith: Remind our listeners what an intelligible principle is. Why is that concept relevant here?

Zhonette Brown: Sure. Well, the intelligible principle is how Congress provides direction or the measure for whether Congress has provided direction to an agency. So, the theory under nondelegation is that so long as Congress provides an agency with an intelligible principle that communicates to the agency the general policy at issue and the boundaries of their authority, that is enough to keep an agency from legislating.

Mark Chenowith: And what did the court decide here? Did it think that enough of an intelligible principle was provided?

Zhonette Brown: Well, not in this specific statute. But the court went back to the old ozone-depleting substances statute, and another statute that they didn’t even name. But they went back to the old ozone-depleting statute and just the general idea of cap and trade and said, “Well, Congress has created a cap-and-trade scheme in the environmental space. Before that scheme was based on market share. Therefore, Congress must have intended this to be based on market share.” And that was really the extent of the panel’s analysis.

Mark Chenowith: That sounds like a problem to me because essentially the court – and again, this is the D.C. Circuit we’re talking about – was Judge Pan the author of the opinion? Do I remember this correctly?

Zhonette Brown: That is correct.

Mark Chenowith: So, the court upheld this market share distribution, but in fact, that’s now what the EPA did. I mean, it used market share as part of what it did, but it also did these set-asides for new entrants and some other things that had not been either part of what Congress had told it to do or part of what it had done before in these other statutes. So, that seemed to really be done on its own initiative and not at the direction of Congress or something that coulda been predicted by participants in the market. So, why did the court think that –

John Vecchione: That was okay?

Mark Chenowith: Yeah, that that was okay? It just seems like the court upheld something that isn’t actually what happened is what I was trying to spit out.

Zhonette Brown: Well, I think it’s notable that the court dropped a footnote in their opinion saying, “If there’s more than one plausible interpretation of the statute, then we go with the one that doesn’t have the constitutional problems.” From my point of view, there’s two problems. One is, never does the court say, actually, that the statute was ambiguous. Never does the court say that this is the only plausible interpretation. Never does the court say that the interpretation that’s selected is the best. And so, I think what the court ultimately did was go with an interpretation that it felt was necessary to save the statute, given the nondelegation problems. But that creates a whole different set of problems, as you noted, because that’s now how the EPA created this rule. That’s not the understanding of the EPA’s authority when it made the rule. And the EPA deviated from that practice when it made the rule. So, it creates a whole different problem with whether or not the rule is lawful.

Mark Chenowith: So, that’s fascinating to me. John, you fought the battle at the point on Relentless and overturning Chevron deference because we wanted courts to independently adopt the best –

John Vecchione: I was thinking that.

Mark Chenowith: – statutory interpretation. And here now they’re again not adopting the best statutory interpretation.

John Vecchione: Right. Apparently, to save the regulation, I suppose. I do think that it’s interesting. So, in this case, they didn’t do what the FDA wanted either, did they? I mean, there seems to be a discrepancy with what the court did and what the FDA –

Mark Chenowith: You mean the EPA?

John Vecchione: EPA, excuse me, and the EPA was doing. There seems to be some kind of disconnect.

Zhonette Brown: Yeah. I agree. Like I said, the EPA had to take a slightly different approach because of what it had done with the set-asides. The EPA also created a specific kind of application-specific allowances, and then didn’t take that into account when it was allegedly parsing out the preexisting market share. So, there’s multiple problems that prevented the EPA from taking the approach the court ultimately took on its own.

Mark Chenowith: Yeah. Well, so, are your hands tied now? What can you do next?

Zhonette Brown: Well, we’re certainly going to, at a minimum, seek a rehearing. There are legal and factual problems, and the court’s interpretation creates new problems that weren’t even contemplated. So, we will seek a rehearing, and then we’ll go from there. I think it’s an open question, too, whether or not the client would petition for a new judicial review, because under the Clean Air Act, the sort of changed circumstance may reopen the opportunity for a challenge. So, they may have at least two or three different battle fronts to go forward with.

Mark Chenowith: Yeah. What’s the timing on this? So, the decision just came down at the end of July.

Zhonette Brown: Actually, it just came down on Friday. So, I think that was the first –

Mark Chenowith: Oh, we were early August.

John Vecchione: Yeah.

Zhonette Brown: Yeah.

Mark Chenowith: Okay.

Zhonette Brown: And so, we have 45 days within which to file a request, a motion for rehearing, either by the panel or en banc.

Mark Chenowith: Okay. I guess we don’t know how long it’ll take the panel to decide whether or not it’s gonna grant that. That’s up to them. So, then just have to go from there. Is this something you’ve seen before? Is this a trend of any kind, Zhonette, where courts are sort of upholding something that isn’t what actually happened before? ‘Cause to me what this immediately brings to mind is Justice Kagan’s decision in the Gundy Case where – another non-delegation case as it happens – where the court essentially said, “Well, you’re characterizing what happened here as though Congress punted to the Attorney General to decide whether or not this statute would apply retroactively.”

But that’s not what happened. He obviously had to apply it, and that was the only decision he possibly coulda reached. And boy, when I read that statute, it looks like a punt to the attorney general to decide. But they pretended that that’s not what it said so that there wouldn’t be a nondelegation problem there. And it feels like that’s what’s happening here.

John Vecchione: And it still only got five votes.

Mark Chenowith: Yeah. Right.

John Vecchione: Right? With all that moving around.

Mark Chenowith: Yeah, yeah. So, I’ve just –

Zhonette Brown: Well, and I think that if you talk to the descent in the recent FCC versus Consumers’ Research case, the descent would say much the same thing happened there in that the majority’s interpretation in FCC versus Consumers’ Research isn’t consistent with how the agency or lower courts had interpreted the statute at issue there for the preceding few decades. So, also there, I think, the descent at least, and I think I also would say the majority, interpreted the statute in a way that was completely inconsistent with the way that it had been applied before. And there’s a note in that same opinion regarding again sort of the constitutional avoidance idea of reading the statute narrowly to save it.

Mark Chenowith: Well, John, I think this is something we’re gonna have to keep an eye on because if in the new world post Loper Bright, Relentless, courts are – I guess, back when they were deferring to the agencies, they had no reason to –

John Vecchione: Hide it.

Mark Chenowith: – hide it or recharacterize what the agency was doing or anything. They just said, “Oh, yeah, what they did is fine, and we’re just gonna bless it.” But now that they’re being instructed to analyze it with de novo review and not defer to the agency and so forth, we may see more of this, where the courts are – their de novo review leads to a description of what actually transpired that isn’t consistent with the underlying facts.

John Vecchione: There’s that. I have to say, this has been a very disappointing year for nondelegation everywhere. The Supreme Court had a bad decision. It’s just until there is an agreement on exactly what the test is or something, all these cases have really depressed me over the whole year.

Mark Chenowith: Yeah, I don’t know if you have any thoughts on that, Zhonette. It felt like the timing of your case was that they held it waiting to see what the Supreme Court was going to do in Consumers’ Research, and then, because the court didn’t really do anything in Consumers’ Research, it probably didn’t affect the opinion that they were getting ready to issue very much. But John’s right. It’s been a disappointing year for the nondelegation doctrine – another one. Ninety in a row now, or something.

John Vecchione: No, no, no. There was a little glimmer of hope in Mistretta in the ‘70s. You know.

Mark Chenowith: All right, all right. Did you have a final thought on that, Zhonette?

Zhonette Brown: No. I agree. I think the D.C. Circuit was waiting. I think it has been disappointing. And I think that there’s further risk in the FCC versus Consumer Research opinion in that the court sort of suggests a sliding scale test to intelligible principle that creates, I think, new ground for mischief. So, the battle must continue.

Mark Chenowith: Absolutely. Well, we’ll leave it there. Thank you very much for joining the program, Zhonette. Again, the case is Choice Refrigerants v. EPA at the US Court of Appeals for the DC circuit, so you can keep an eye on how it transpires or how it progresses in that court, as well as if there’s any future action at the US Supreme Court in that case. You’ve been listening to Unwritten Law. As we like to say here at NCLA, let judges judge, let legislators legislate, and stop bureaucrats from doing either.

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Duration: 15 minutes