D.C. Circuit Rejects Developers' Claim that EPA Must Form Small Business Panel

In a case that could have far reaching implications for agencies subject to the Regulatory Flexibility Act, the D.C. Circuit Court last month held that an EPA decision not to convene a small business advocacy review panel before issuing a rule was not judicially reviewable.  The decision by Judge Merrick Garland, for a unanimous 3-judge panel, was in National Association of Home Builders (NAHB) v. EPA.

NAHB challenged the EPA’s change of course on an “opt-out” provision of a rule established under the Residential Lead-Based Paint Hazard Reduction Act.  With the goal of protecting thousands of children from lead poisoning associated with older homes, the rule mandated that renovators of housing built before 1978 take certain steps to mitigate the dangers from lead paint.  The opt-out provision would allow an owner-occupant of housing without children under the age of six or pregnant women to waive protections afforded by the rule.  Two years after first creating the opt-out provision, the EPA, hearing criticism from environmental health advocates, reconsidered the harm the opt-out could cause to children and pregnant women, and chose to rescind it.  The agency did so relying solely on the evidence that was available when the opt-out provision was enacted, but now applying that evidence to better fulfill the governing statute’s directives.  As Judge Garland put it, the EPA simply “changed its mind.”

Among other things, the NAHB argued that the EPA’s change of course violated the Regulatory Flexibility Act (RFA) because the agency did not convene a small business advocacy review panel.  The RFA § 609(b) stipulates that an agency must convene such a panel in connection with the initial flexibility analysis that is mandated each time a new rule is promulgated. 

However, the Court maintained that this issue is not judicially reviewable.

The first point made by Judge Garland was that § 609(b) was conspicuously left absent from a list of provisions the RFA enumerates as reviewable.  The RFA clearly states that only certain agency’s actions or inactions performed under the act are judicially reviewable.  Seating a small business panel under § 609(b) is not one of these mandates.  Therefore, review of § 609(b) is not within the discretion of the Court.

Second, Judge Garland addressed the NAHB’s assertion that the Court could review the EPA’s failure to comply with § 609(b) as evidence that it acted arbitrarily and capriciously, violating the APA, 5 U.S.C. § 706(2)(A).  Judge Garland counters this claim by saying the APA’s arbitrary and capricious section was not meant to address a “purely procedural device” not actually mandated by the APA itself.  He went on to point out that under the Supreme Court’s Vermont Yankee decision, “courts may not, under the guise of the APA’s arbitrary-and-capricious review standard, impose procedural requirements such as convening of a small business panel under the RFA that the APA’s procedural provisions … do not themselves impose.” 

So where does this leave us?  Small business review panels may sound pleasant, but in reality they are often a tool used by larger industries to slow or stop public protections.  And before they existed, all parties, small business or otherwise, already were given the opportunity to publicly comment on proposed rules.  The input process and transparency was already there; the small business panels often serve as more of a separate roadblock.

With this decision, in the least, industry has one less tool at its disposal with which to potentially attack agency rulemaking.  While this ruling does not eliminate the RFA mandate requiring agencies to convene small business panels in some situations, agencies certainly now have increased discretion as to when such a practice is necessary.  This could have significant implications for other agencies whose rulemaking agendas are slowed by the work of small business panels, such as OSHA’s issuance of new workplace health and safety standards.  Given their increased freedom, it is now up to the agencies not to hesitate to exercise it when appropriate and when the public stands to benefit.  If agencies react accordingly, the D.C. Circuit Court decision ought to help reduce regulatory delays – and therefore save lives.