On July 2, 2019, the U.S. Court of Appeals for the D.C. Circuit denied a petition for review of the Environmental Protection Agency’s (EPA) transfer-based exclusion for hazardous secondary materials filed by California Communities Against Toxics et al., finding (1) that the “EPA did not act contrary to RCRA [the Resource Conservation and Recovery Act] in adopting the Transfer-Based Exclusion because hazardous secondary materials are not necessarily ‘discarded’ each time they are transferred from a generator to a reclaimer along with payment” and (2) that the “EPA has provided a reasoned explanation for applying different standards to materials that are not yet part of the waste disposal problem RCRA addresses where they meet conditions EPA concluded were adequate for safe transfer and legitimate recycling.” Cal. Comtys. Against Toxics v. EPA, No. 18-1163 (July 2, 2019). The petitioners had argued that “a generator ‘discards’ hazardous material whenever it pays a reclaimer to accept the material” and that the EPA had “not provided a reasoned explanation for treating hazardous material differently based on whether it [wa]s sent to a reclaimer instead of a treatment, storage, or disposal facility.” The petitioners also argued that the “EPA has already identified deficiencies in the Transfer-Based Exclusion,” which had been replaced in 2015, reinstated by the court in 2017, and reissued by the EPA as modified in 2018.
The EPA originally promulgated the transfer-based exclusion, along with the generator-controlled exclusion, in 2008. In an effort to “encourage and expand the safe, beneficial recycling of additional hazardous secondary materials,” the agency allowed generators to avoid Subtitle C regulation of those materials as hazardous wastes as long as the generator either controlled the recycling or transferred the materials to an off-site reclaimer, provided that the materials were “transferred securely and actually recycled.” Cal. Comtys. Against Toxics, No. 18-1163 (quoting and citing the 2008 rule). The agency included requirements for the generator to audit reclaimers and adhere to “Legitimacy Factors” to prevent “sham” operations. Id.
After both environmental groups and industry groups challenged the original rule, the EPA in 2015 replaced the original transfer-based exclusion with what was known as a verified recycler exclusion, limiting the exclusion to transfers of these materials to recyclers that obtained either permits or variances.
Both sides again challenged this replacement rule; it was ultimately vacated and the original rule was reinstated in 2017, with requirements that were added in 2015 “regarding emergency preparedness and containment.” Id. (citing Am. Petroleum Inst. v. EPA, 862 F.3d 50 (D.C. Cir. 2017)).
Then, after rehearing, the D.C. Circuit “expanded the [exclusion] to cover spent refinery catalysts.” Id. (citing Am. Petroleum Inst. v. EPA, 883 F.3d 918 (D.C. Cir. 2018)). Later that same year, “[w]ithout further notice and comment,” the EPA published the transfer-based exclusion as modified by the D.C. Circuit throughout the ten years of challenges, Response to Vacatur of Certain Provisions of the Definition of Solid Waste Rule, 83 Fed. Reg. 24,664 (May 30, 2018), resulting in another challenge and this July 2019 decision. Cal. Comtys. Against Toxics, No. 18-1163.
After lengthy discussions on each threshold issue, the court concluded that the petitioners had standing, had not waived their rights, and had challenged within applicable time frames; that there was no issue preclusion; and that stare decisis did not bar the claim as no court had expressly decided whether hazardous materials that a generator pays a reclaimer to accept are necessarily discarded under the RCRA (as a matter of statutory interpretation). The court also observed that the court in earlier challenges to the transfer-based exclusion had not addressed the claims that the conditions applicable to transfer of these materials were “less stringent” than those applicable to hazardous waste under Subtitle C and, thus, “insufficient to protect human health.” Id.
Merits: RCRA Authority
While the petitioners did not contend that the act of transferring or reclaiming the waste renders the waste “discarded” under the RCRA, they did contend “that a generator’s payment to a reclaimer to accept such material necessarily indicate[d] that the material has negative value to the generator and the transfer is a means of getting rid of, or “discarding,” the material.” Id. The RCRA does not define discarded material or address payment, but the California Communities Against Toxics court found precedent in its own prior decisions that “foreclose[d] petitioners’ . . . contention that payment is determinative of discard.” Id.
In 1987 in American Mining Congress v. EPA, the court sided with industry, holding that the “ordinary, plain-English meaning of the word ‘discarded’ is ‘disposed of,’ ‘thrown away,’ or ‘abandoned,’” and declined to accept the EPA’s interpretation of discarded in its broadest sense because it did not seem “to comport with Congress’s objectives”: “That is, in RCRA Congress sought to address the ‘ever increasing problem of solid waste disposal by encouraging the search for and use of alternatives to existing methods of disposal (including recycling).’” Id. (quoting Am. Mining Congress, 824 F.2d 1177, 1184, 1185–86 (D.C. Cir. 1987)). In that case, the court held that the EPA lacked authority under Subtitle C to regulate materials “destined for beneficial reuse or recycling in a continuous process by the generating industry itself.” Id. (quoting Am. Mining Congress, 824 F.2d at 1186).
The California Communities Against Toxics court recognized that there was ambiguity in the EPA’s treatment of materials intended to be reclaimed or recycled and distinguished decisions involving K061 slag, materials that are treated or stored prior to reuse or recycling, and materials that are discarded even if they are sent to a resource-recovery facility. The court pointed out, however, that it had stopped short of lumping secondary materials into the “discarded” category just because they were not immediately reused or transferred to another firm or industry for recycling, accepting the EPA’s exclusion for materials that market participants treat “more like valuable products than like negatively-valued wastes, managing them in ways inconsistent with discard.” Id. (quoting Safe Food & Fertilizer v. EPA, 350 F.3d 1263, 1269 (D.C. Cir. 2003)). The court also had previously found that the EPA “lacked a sufficient basis to issue a blanket rule finding discard and applying Subtitle C when the recycled material is transferred and of low value.” Id.
Thus, because the court concluded that Congress had not “directly resolved that ‘discarded material’ must include hazardous secondary materials that a generator . . . paid a reclaimer to accept,” the court then moved to the question of whether the EPA’s interpretation is “based on a permissible construction of the statue” (which is not necessarily “the only permissible construction”). Id. (citations omitted). Under Chevron, the court noted, “[d]eference is due to the agency’s permissible interpretation ‘if the agency has offered a reasoned explanation for why it chose that interpretation.’” Id. (quoting Vill. of Barrington, Ill. v. Surface Transp. Bd., 636 F.3d 650, 660 (D.C. Cir. 2011)). Thus, the court disagreed with the petitioners, finding that the EPA stated in the preamble to the 2008 rule that it had considered the “plain language definition of discard” and Congress’s intent “to ensure proper waste management” but also took into account the House Committee’s report conclusions that “properly conducted reuse, recycling, and reclamation are inconsistent with ‘discard’” and not part of the disposal problem. Id. (citations omitted). The EPA also “acknowledged that Congress intended [for] certain hazardous materials destined for recycling to be regulated” and that “[e]xcluding all hazardous secondary materials destined for recycling . . . ‘seem[ed] inconsistent’” with the “cradle to grave” mandate for hazardous wastes. Id. (citation omitted). However, the court observed that it had in prior decisions “embraced the view that if materials never become part of the waste disposal problem, then they are not ‘discarded’ and need not be regulated under Subtitle C.” Id.
In support of finding that it was reasonable that the EPA “equated legitimate recycling with lack of ‘discard,’” the court noted that if the EPA’s “Transfer Conditions and Legitimacy Factors adequately ensure legitimate recycling, . . . then materials conforming to them are not ‘discarded.’” Id. The EPA had considered the payment-to-reclaimers issue, relying on its market forces study, and determined that there were various reasons for such payments, including lack of competition in recycling markets, cost savings compared to Subtitle C requirements, and need for “capital costs to develop and implement the necessary recycling infrastructure and market.” Id. The court concluded that instead of ignoring the relevance of the payment issue, the EPA had addressed it in the legitimacy factors analysis but declined to make it dispositive—and that was “a permissible interpretation of ‘discard’” and not contrary to the RCRA as the petitioners contended. Id.
Merits: Reasoned Basis
With respect to whether the EPA’s transfer-based exclusion is arbitrary and capricious as the petitioners contended because the “EPA failed to provide a reasoned basis for treating the same hazardous materials differently and to account for its prior findings that the Transfer Conditions are inadequate,” the court was unpersuaded. Id. The decision recognizes that materials that are not discarded are not solid wastes and, thus, not subject to Subtitle C.
The transfer conditions “ensure that [the] hazardous secondary materials do not end up in a landfill [or] incinerator” but “remain in a continuous stream or flow of production within industry processes” and “address potential risks by requiring the third-party reclaimers that accept such materials to handle them properly and safely and not to discard them.” Id. To address possible accumulation problems, the EPA included “Transfer Conditions and Legitimacy Factors to ensure that . . . materials may be sent only to reclaimers that have economic incentives to responsibly manage and recycle [the materials]” and to avoid potential “unintended or surreptitious” discard, limiting holding times at transfer facilities and requiring reclamation of “at least 75% of hazardous secondary materials [that a facility] obtains over a calendar year.” Id. Residuals must be managed in compliance with applicable regulations, including Subtitle C, when discarded. Because there is no “statutory requirement that these conditions be identical to Subtitle C requirements,” the court determined that the “EPA’s response was not arbitrary and capricious.” Id.
The court also determined that the EPA’s explanation for its changed position regarding the transfer-based exclusion’s transfer conditions was adequate, finding that recycling management and controls had improved over time due to enforcement and generators’ audits ensuring that recyclers/reclaimers “are technically and financially capable of performing the recycling” and due to implementation of practices that prevented discard and curbed risks. Id. (citation omitted). Thus, by the time the EPA’s restrictions and conditions were adopted, they were “sufficient to ensure safe recycling activities.” Id. (citation omitted).
Because the “did not exceed its authority under RCRA in adopting the Transfer-Based Exclusion because hazardous secondary materials are not necessarily ‘discarded’” during a transfer involving a payment and because the EPA “adequately explained why such materials may be subject to the Transfer Conditions rather than full Subtitle C requirements,” the court denied the petition for review.
The impact of this decision on the regulated community will depend on whether the state operates an authorized program, whether or not authorized states adopted some version of the exclusion into the state’s hazardous waste program, and how long it takes authorized states to adopt the legitimacy factors.
This thoughtful, practical opinion seems to provide the EPA with a tutorial on promulgating a defensible regulation.
Karen Aldridge Crawford is a partner with Nelson Mullins Riley & Scarborough in Columbia, South Carolina.
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