Simmons Oil Co. v. Gorsuch

Nos. 82-2282 et al. (D.C. Cir. February 9, 1983)

The court vacates the portion of the Environmental Protection Agency's (EPA's) small refinery leaded gasoline standard that restricted small refiners to those that were not owned or controlled by a large refiner any time after July 1, 1981. The court finds that EPA failed to give adequate notice that it might replace the small refiner "current ownership" requirement with a "past ownership" requirement. The court rejects EPA's contention that small refiners were on notice of the definitional change because the Agency had solicited comments on a proposal to change the small refiner definition from one based on capacity limits to one based on production limits. The court holds that the past ownership requirement was not a logical outgrowth of the capacity limit change. The court also dismisses EPA's claim that a comment received from another refiner recommending a past ownership requirement provided plaintiff with adequate notice. The Agency itself, and not an interested party, must provide notice of what it plans to do. The rule may be invalidated because with notice, the rule might have been substantially changed.The court leaves the current ownership standard in force.

Counsel for Petitioner
Scott M. DuBoff
Debevoise & Liberman
1200 17th St. NW, Washington DC 20036
(202) 857-9800

Counsel for Respondents
David E. Dearing
Land and Natural Resources Division
Department of Justice, Washington DC 20530
(202) 633-5777

Samuel I. Gutter, Ralph J. Colleli Jr.
Office of the General Counsel
Environmental Protection Agency, Washington DC 20460
(202) 382-4134

Before Wilkey, Wald, and Mikva, JJ.

[13 ELR 20390]

Per curiam:

Order

Petitioner Simmons Oil Corp. challenges one aspect of an EPA regulation that sets lead-content limits for gasoline produced by certain "small" refiners. 47 Fed. Reg. 49,322 (Oct. 29, 1982) (to be codified at 40 C.F.R. §§ 80.2, .4, .7, .20). In relevant part, the new rule defines "small refinery" to include only refiners that are not and were not "during any period of ownership or control since July 1, 1981" owned or controlled by a refiner with total gasoline production greater than 70,000 barrels per day (bpd). Id. at 49,332 (to be codified at 40 C.F.R. § 80.2(p)(3)). Simmons, a small refiner that was owned by a large refiner until January 4, 1982, challenges this past ownership requirement as having been promulgated without adequate notice and as arbitrary and capricious.

On January 12, 1983, we stayed the past ownership requirement pending decision on the merits. Our disposition of the case makes speed of the essence; the practical effect of our decision expires on July 1, 1983, after which small refiners must meet the same lead-content standard as large refiners. We are therefore issuing an order today, with a full opinion explaining our rationale to follow shortly. We now lift the stay but vacate the past ownership requirement because EPA did not give adequate notice that it might impose such a requirement.

Previous regulations had used capacity limits to define "small refinery" and had a current ownership requirement — a refinery could qualify as small only if it (1) had crude oil capacity of 50,000 bpd or less and (2) was not owned or controlled by a refiner with crude oil capacity greater than 137,500 bpd [hereinafter called a "large refiner"]. 40 C.F.R. § 80.2(p) (1982). In August, 1982, EPA issued a proposed rule in which it switched from capacity limits to production limits. See 47 Fed. Reg. 38,078, 38,084 (Aug. 27, 1982) (explaining the proposed change). Under the proposed rule, a refinery, to qualify as "small," had to (1) have average gasoline production of 10,000 bpd or less during the most recent calendar quarter and (2) not be owned or controlled by a refiner with average gasoline production greater than 70,000 bpd during the most recent calendar quarter. Id. at 38,088 (proposed to be codified at 40 C.F.R. § 80.2(p)(2)-(3)). The proposal did not alter the current ownership requirement except to the extent that it redefined "large refiner."

EPA received some 400 written comments on various aspects of the proposed lead-content rule. One commenter, Asamera Oil, suggested that under the current ownership requirement, there was an incentive for large refiners to sell small facilities to take advantage of the less stringent lead-content limits applicable to small refiners. Written Comments of Asamera Oil (U.S.), Inc. at 11-13 (Sept. 22, 1982), J.A. at 381, 392-94.¹ EPA was persuaded by Asamera's comment and therefore added the past ownership requirement to which Simmons now objects. See 47 Fed. Reg. at 49,325-26. The change affects Simmons and perhaps one other refiner.

EPA presents two arguments why Simmons was on notice of this change. First, EPA points out that its Notice of Proposed Rulemaking solicited comments on methods to assure that the change from capacity limits to production limits would not permit small refiners "to expand their production of leaded gasoline." Id. at 38,085. This request for comments, EPA suggests, should have put Simmons on notice that the ownership criterion might be revised. In our view, however, the change from a current ownership requirement to a past ownership requirement was not a "logical outgrowth" of EPA's invitation for comments on loopholes created by the change from capacity limits to production limits. See United Steelworkers of America v. Marshall, 647 F.2d 1189, 1221 [10 ELR 20784] (D.C. Cir 1980) (final rule must be a "'logical outgrowth' of the rulemaking proceeding") (quoting South Terminal Corp. v. EPA, 504 F.2d 646, 659 [4 ELR 20768] (1st Cir. 1974)), cert. denied, 453 U.S. 913 (1981); Weyerhaeuser Co. v. Costle, 590 F.2d 1011, 1028-31 [9 ELR 20284] (D.C. Cir. 1978).

EPA also argues that Asamera's comment was sufficient to put Simmons on notice that it ought to submit comments opposing the past ownership requirement. We disagree. Under Clean Air Act § 307(d), no less than under the Administrative Procedure Act, the agency itself must provide fair notice of what it plans to [13 ELR 20391] do. Having failed to do this, EPA cannot bootstrap notice from a comment. See S. REP. NO. 752, 79th Cong., 1st Sess. 14 (1946) ("Agency notice must to sufficient to fairly apprise interested parties of the issues involved, so that they may present responsive data or arguments relating thereto.") (emphasis added); cf. Wagner Electric Corp. v. Volpe, 466 F.2d 1013, 1019 (3d Cir. 1972) (that some "knowledgeable manufacturers" responded to an inadequate notice with comments relating to the final rule "is not relevant. Others [were] possibly not so knowledgeable . . . .").

Had it received comments from Simmons on this issue, EPA might well have concluded that the change from a current ownership requirement to a past ownership requirement was not needed in light of the temporary nature of the small refiner exemption. Alternatively, Simmons might have persuaded EPA that the July 1, 1981 cutoff date (which EPA did not explain) should have been changed — perhaps to February 22, 1982, the date when EPA initially proposed relaxing lead-content limits for small refiners. Thus, there is a "substantial likelihood that the rule would have been significantly changed" had EPA given proper notice. Clean Air Act § 307(d)(8), 42 U.S.C. § 7607(d)(8) (standard for invalidating a rule on procedural grounds).

In light of the foregoing, we vacate the requirement in 40 C.F.R. § 80.2(p)(3) that a refinery, to qualify as "small,' must not have been owned or controlled during any period since July 1, 1981 by a refiner with total gasoline production greater than 70,000 bpd. We leave in force that portion of § 80.2(p)(3) which requires that a small refinery not be currently owned or controlled by a large refiner. EPA remains free, of course, to institute expedited rulemaking with a view toward possibly repromulgating a new regulation to replace the vacated portion of § 80.2(p)(3).

The mandate will issue immediately.

1. The Comments of the Department of Justice, at 9, 11 (Oct. 8, 1982). J.A. at 599, 608, 610, suggested a similar change, but EPA has not adverted to those comments either in its explanation of the past ownership rule in the Federal Register or in its briefs to this court.