896 F.3d 600
4th Cir.2018Background
- Ergon-West Virginia operates a small refinery in Newell, WV (23,000 bpd) that produces lube oils; transportation fuels (≈2/3 diesel, 1/3 gasoline) are byproducts and sold regionally.
- Under the Clean Air Act RFS program, small refineries could obtain temporary exemptions if compliance would cause "disproportionate economic hardship," with DOE studying impacts and EPA deciding petitions in consultation with DOE.
- DOE issued a 2011 Study containing a two-index scoring matrix (Disproportionate Impact Index and Viability Index) with several subfactors (including local market acceptance and blending capacity for ethanol and biodiesel, and RIN net cost/revenue).
- Ergon petitioned EPA for an exemption for 2014–2016; EPA denied 2014–2015 based on DOE scoring and denied 2016 (the denial at issue) after relying on DOE’s recommendation and its own review.
- Ergon challenged the 2016 denial, arguing EPA arbitrarily relied on a facially flawed DOE analysis (not scoring biodiesel-related factors and RIN costs) and unlawfully required a showing of threatened viability.
- The Fourth Circuit held EPA’s 2016 denial arbitrary and capricious because EPA relied on DOE’s facially-deficient report without adequate independent analysis and failed to address Ergon’s specific evidence about RIN costs; vacated and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether EPA’s reliance on DOE’s report was arbitrary and capricious | EPA blindly adopted DOE’s flawed scoring (failed to score biodiesel/local-market and blending-capacity factors; omitted RIN cost scoring) so decision is arbitrary | EPA reviewed DOE’s report, independently considered other economic factors, and properly denied petitioner | Held for plaintiff: EPA’s reliance on a facially-deficient DOE report without meaningful independent analysis was arbitrary and capricious; remanded |
| Whether EPA ignored petitioner’s RIN-cost evidence | Ergon submitted specific evidence that high RIN prices harmed its ability to compete in a diesel‑heavy local market and EPA failed to meaningfully address it | EPA pointed to industry‑wide findings that RIN costs can be passed through and thus do not impose net burden | Held for plaintiff: EPA’s cursory treatment of Ergon’s specific RIN-cost evidence and reliance on a general, industry‑wide study was arbitrary and capricious |
| Whether EPA required a showing of threatened viability beyond statutory "disproportionate economic hardship" | Ergon: EPA imposed an extra-statutory "viability" requirement and denied petitions unless viability was threatened | EPA: viability is an appropriate factor; even if considered, it was only one of several factors | Held for defendant on this point: Court found no improper viability-only requirement in the 2016 denial; EPA may consider viability but cannot treat it as a dispositive extra-textual prerequisite |
| Remedy: vacate or remand | Ergon sought vacatur and remand for further proceedings | EPA argued other grounds justified denial and decision should stand or be remanded without vacatur | Held: Court vacated the 2016 denial and remanded to EPA for further proceedings consistent with opinion |
Key Cases Cited
- Friends of Back Bay v. U.S. Army Corps of Eng'rs, 681 F.3d 581 (4th Cir.) (arbitrary-and-capricious review not a rubber stamp)
- United States v. F/V Alice Amanda, 987 F.2d 1078 (4th Cir.) (agency action arbitrary when it ignores important aspects of the problem)
- City of Tacoma v. FERC, 460 F.3d 53 (D.C. Cir.) (action agency cannot blindly adopt another agency’s report)
- Dow AgroSciences LLC v. Nat’l Marine Fisheries Serv., 637 F.3d 259 (4th Cir.) (review focuses on whether reliance on another agency’s report was arbitrary and capricious)
- Sinclair Wyo. Ref. Co. v. U.S. EPA, 887 F.3d 986 (10th Cir.) (discussed viability considerations in small‑refinery exemption cases)
- Lion Oil Co. v. EPA, 792 F.3d 978 (8th Cir.) (review of EPA reliance on DOE analyses in exemption context)
- Hermes Consol., LLC v. EPA, 787 F.3d 568 (D.C. Cir.) (addressing EPA’s reliance on DOE Viability Index)