357 F. Supp. 3d 30
D.C. Cir.2019Background
- The Great Lakes Pilotage Act requires foreign vessels to use registered pilots and directs the Secretary (delegated to the Coast Guard) to set pilotage rates that consider the costs of providing pilotage services.
- Prior to 2016, Coast Guard practice (following the 1995 methodology and 2003 interim explanation) allowed pilots associations to include reasonable and necessary legal fees as operating expenses, including fees from litigation against the U.S., absent bad-faith findings.
- In 2016 the Coast Guard adopted a new methodology, adding 46 C.F.R. § 404.2(b)(6), which categorically excluded legal expenses "associated with legal action against the U.S. government or its agents" from includable operating expenses.
- The pilots had incurred $75,049 in legal fees in 2014 litigation against the Coast Guard; those fees were excluded in the 2017 rate-setting under the new rule. Plaintiffs sued seeking vacatur of § 404.2(b)(6) for future rate settings.
- The administrative record for the 2016 rulemaking showed the NPRM stated the methodology would not make substantive changes (except on pilot benefits), commenters pointed out the departure from past practice, and the Coast Guard responded tersely that it "disagree[d]" and that it is "inappropriate" to routinely approve legal costs against the regulator.
- The court found the Coast Guard failed to acknowledge the change from prior policy and did not adequately explain or respond to commenters, making the 2016 rule arbitrary and capricious; it vacated § 404.2(b)(6) prospectively.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 404.2(b)(6) changed prior policy on recognizing legal fees | Pilots: 2016 rule is a substantive departure because prior practice allowed government-litigation fees if necessary and reasonable | Coast Guard: rulemaking merely clarified or refined methodology; no improper change | Court: 2016 rule did change policy (it categorically excluded a previously recognized category) |
| Whether the agency adequately acknowledged the change | Pilots: Coast Guard failed to acknowledge it was changing position in the NPRM and final rule | Coast Guard: comments and final rule response show awareness and substance was addressed | Court: Agency did not display awareness of change; NPRM explicitly said no substantive change and final response did not acknowledge departure |
| Whether the agency provided a reasoned explanation and responded to comments | Pilots: Coast Guard’s "We disagree" and brief rationale did not address commenters’ points about necessity, industry practice, or the pilots' reliance | Coast Guard: policy is rational; post-hoc briefs explain why exclusion is appropriate | Court: Explanation in record was inadequate; post-hoc rationalizations cannot cure the defect; action arbitrary and capricious |
| Remedy: appropriate relief for arbitrary-and-capricious rule | Pilots: vacatur of § 404.2(b)(6) (they later limited relief to prospective vacatur) | Coast Guard: urged upholding or different remedy | Court: Vacatur of § 404.2(b)(6) prospectively; no relief ordered for past rates/paid amounts |
Key Cases Cited
- Am. Wild Horse Pres. Campaign v. Perdue, 873 F.3d 914 (D.C. Cir. 2017) (agency must acknowledge and explain departures from prior policy)
- Lone Mountain Processing, Inc. v. Sec'y of Labor, 709 F.3d 1161 (D.C. Cir. 2013) (failure to acknowledge policy change renders action arbitrary)
- FCC v. Fox Television Stations, Inc., 556 U.S. 502 (U.S. 2009) (agency free to change course but must display awareness of change)
- Motor Vehicle Mfrs. Ass'n v. State Farm, 463 U.S. 29 (U.S. 1983) (arbitrary-and-capricious standard requires reasoned explanation)
- Bowman Transp., Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281 (U.S. 1974) (courts may uphold agency action if the agency's path reasonably can be discerned)
- Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (U.S. 1971) (scope of arbitrary-and-capricious review is narrow)
- Richards v. INS, 554 F.2d 1173 (D.C. Cir. 1977) (summary judgment appropriate to decide legal questions of agency compliance with APA)
- Holy Land Found. for Relief & Dev. v. Ashcroft, 333 F.3d 156 (D.C. Cir. 2003) (review limited to the administrative record)
- City of Olmsted Falls v. FAA, 292 F.3d 261 (D.C. Cir. 2002) (challenger bears burden of proof in APA review)