March 01, 2016

Overreach in Agency Rulemaking: Judicial Pushback?

Lisa A. Decker

Challenges to agency-issued rules are starting to gain traction in the courts. This is an encouraging development in those instances where agencies are promulgating rules that go past the authority granted to them under existing laws. Typically, agencies issue rules and regulations to enforce environmental requirements and statutes. Although rules that are promulgated under the Administrative Procedure Act (APA) undergo a public comment process, agencies often have broad discretion in constructing their rules because agency action enjoys considerable deference. Some argue that agencies have become bolder, issuing rules that are extremely broad in their coverage—in some instances to the point of overreaching their authority and expertise.

Although others may disagree that overreaching is occurring, there is no question that since 2009, there has been a flurry of activity and rulemaking on the environmental front. Rules are often challenged, but courts have generally upheld the authority of federal agencies to issue broad and comprehensive regulations. Recently, however, the trend toward upholding unfettered agency authority is reversing.

A current example relates to the U.S. Bureau of Land Management’s (BLM) attempt to regulate hydraulic fracturing, a technical process that already is subject to comprehensive state and federal regulation. In September 2015, Judge Scott Skavdahl of the U.S. District Court for the District of Wyoming blocked the implementation of BLM’s final rules relating to hydraulic fracturing, granting the challengers’ motion for preliminary injunction. State of Wyoming v. United States of the Interior, No. 2:15-cv-043-SWS (D. Wyo. Sept. 30, 2015) (Order on Motions for Preliminary Injunction).

BLM finalized comprehensive rules for hydraulic fracturing on federal and Indian lands on March 26, 2015, which were scheduled to go into effect on June 24, 2015. 80 Fed. Reg. 16,128 (Mar. 26, 2015). Hydraulic fracturing is the process by which oil and gas producers pump a mixture of water, sand, and certain chemicals (less than one percent of the total) through wellbores into tight-rock formations (typically shale) to create fissures in the rock that allow oil and gas to flow into the well and up through the wellbore. BLM’s rules focus on three aspects of oil and gas development—wellbore construction, chemical disclosures, and water management. Id. at 16,128–129. BLM first issued its proposed rules in May of 2012 to implement “additional regulatory effort and oversight” of the hydraulic fracturing process. Id. at 16,131; 77 Fed. Reg. 27,691 (May 11, 2012). The initial proposed rules generated approximately 177,000 public comments. Then, a year later, BLM issued its revised proposed rules. 78 Fed. Reg. 31,636 (May 24, 2012). This time, the BLM received over 1.35 million comments. When BLM ultimately published its final rule in March 2015, Wyoming, Colorado, Utah, North Dakota, the Ute Tribe, and two petroleum industry groups (Western Energy Alliance and the Independent Petroleum Association of America) challenged the rules, filing motions for preliminary injunction before the federal district court in Wyoming. In response, a number of environmental groups intervened in support of the BLM.

The challengers sought judicial review under the APA, arguing that the court should set aside BLM’s rule because it is arbitrary, not in accordance with law, and in excess of the BLM’s statutory jurisdiction and authority. They requested a preliminary injunction enjoining the BLM from applying the rule pending resolution of the litigation. State of Wyoming at 5, 6. Acknowledging that an agency’s decision is entitled to a “presumption of regularity,” the court emphasized that such presumption “does not shield the agency from a ‘thorough, probing, in-depth review.’” Id. at 7. The court stated that an “essential function” of its review under the APA is to determine “whether an agency acted within the scope of its authority.” Id. at 9. To evaluate the BLM’s assertion that it had authority to regulate hydraulic fracturing, the court relied on Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837 (1984)—the seminal case of deference to agency construction of statutes where Congress has not specifically addressed the issue. Here, however, the court found that Congress had spoken directly to the issue that BLM sought to regulate by precluding federal agency authority to regulate hydraulic fracturing not involving the use of diesel fuels under the express language of the Energy Policy Act of 2005 (EPAct). State of Wyoming at 10, 19. In so ruling, the court held that “[i]t seems the BLM is attempting to do an end-run around the EPAct; however, regulation of an activity must be by Congressional authority, not administrative fiat.” Id. at 22.

BLM argued that interpreting the EPAct to preclude all federal regulation of hydraulic fracturing would leave a regulatory gap where states or tribes were not sufficiently regulating that activity. Importantly, the court emphasized that an administrative agency’s power to regulate in the public interest must always be grounded in a valid grant of authority from Congress—no matter how important or controversial the issue. Nodding to Chevron deference, the court clarified that, even if the BLM’s interpretation was entitled to some deference in these circumstances, “Chevron ‘is not a wand by which courts can turn an unlawful frog into a legitimate prince.’” Id.

The judge further criticized the “paucity of evidentiary support for the Rule.” Id. The court concluded that the “BLM has neither substantiated the existence of a problem this rule is meant to address, identified a gap in existing regulations the final rule will fill, nor described how the final rule will achieve its stated objectives. Rather, the Fracking Rule seems a remedy in search of harm.” Id. at 23. The court noted that the BLM relied on “potential impacts” and “possible mechanisms” as justification for the rule. However, the court found that “the BLM does not appear to have given any consideration to whether these concerns or potential impacts are substantiated by fact,” nor did the BLM consider “the evidence contrary to its conclusion that there is a need for ‘additional regulatory effort and oversight.’” Id. at 26. The judge emphasized that the record “reflects that both experts and government regulators have repeatedly acknowledged a lack of evidence linking the hydraulic fracturing process to groundwater contamination.” Id. at 26. It is encouraging to see a court refuse to let an agency rely on political controversies and unsubstantiated facts to form the basis of its regulations.

Procedural wrangling continues in the case. On December 29, 2015, Judge Skavdahl denied BLM’s request to bifurcate the action and make final the preliminary injunction so the case immediately could be appealed to the U.S. Court of Appeals for the Tenth Circuit, stating that it was unfair to the challengers to disallow them the opportunity to review the complete administrative record before the case proceeds on its merits. The BLM was directed to submit the full administrative record in the case by February 2016, with additional briefing and a hearing on the merits to be scheduled this spring. Both sides agree that no matter what the outcome on the merits is, the decision is sure to be appealed to the Tenth Circuit.

Another recent example of judicial scrutiny of agency rulemaking is the ongoing legal challenge to the U.S. Environmental Protection Agency’s (EPA) Waters of the United States (WOTUS) rule. See Christopher D. Thomas, Defining “Waters of the United States”: A Mean-Spirited Guide, NR&E Vol. 30, No. 1, Summer 2015 at 32 (for background of rule); Brooks Smith, et al., Multidistrict Transfer & Consolidation—WOTUS Cases, NR&E Vol. 30, No. 4, Spring 2016 at 59. The EPA and the Army Corps of Engineers issued broad-in-scope regulations, which were immediately challenged by multiple states in various jurisdictions across the United States. Based on some of the challenges, implementation of the WOTUS rule has been stayed nationwide. In October 2015, a judicial panel ruled that it would not consolidate into the United States Court of Appeals for the District of Columbia Circuit the nine lawsuits pending at that time in seven federal courts of appeals. Although the final outcome in these cases is not yet known, the legal activity surrounding the WOTUS rule provides another recent example of courts blocking implementation of agency rules pending more in-depth consideration of the agency’s authority to issue broad rules.

A number of additional challenges to high-profile environmental regulations are in process, including challenges to the EPA’s Clean Power Plan (challenged by more than twenty-seven states and numerous trade organizations) that have been consolidated before the U.S. Court of Appeals for the District of Columbia Circuit. State of West Virginia v. EPA, No. 15-1363 (and consolidated cases) (D.C. Cir. 2015). In late December 2015, the parties to that action completed briefing on motions to stay the rules pending final determination on the merits, although oral argument has not yet been scheduled. Even if a stay is not granted, a determination on the merits is not expected until late 2016 or early 2017. Similarly, five states (and trade organizations and companies) sued EPA in late 2015 over the new limits on ozone (tightening the ozone standard from 75 parts per billion to 70 parts per billion). These cases have been consolidated before the U.S. Court of Appeals for the District of Columbia Circuit. State of Arizona v. EPA, Nos. 15-1392, 15-1385 (D.C. Cir. October 2015). In November 2015, various parties filed motions to intervene in the consolidated actions. It remains to be seen in these actions as to whether the courts will continue to flex their muscles to block rules that reach beyond an agency’s authority.

There is no doubt that government agencies will continue to issue broad-based regulations in the environmental and natural resources contexts to implement what they deem important policies, particularly in this era where there is stalemate on environmental issues in the (dysfunctional) Congress. There is also no doubt that legal challenges to these agency rulemakings will continue. Nevertheless, the current trend by the courts to scrutinize agency action more closely is helpful in the effort to force agencies to substantiate the basis for their rulemaking and not overstep the authority granted to them by Congress.

Lisa A. Decker

Ms. Decker is senior counsel in Denver, Colorado, for WPX Energy, Inc., a Tulsa-based publicly traded oil and gas exploration and production company. She is a member of the Natural Resources & Environment editorial board. She may be reached at lisa.decker@wpxenergy.com.