151 F. Supp. 3d 76
D.D.C.2015Background
- Congress’s Buy America statute (now 23 U.S.C. § 313) requires steel, iron, and manufactured products used in federal-aid highway projects be produced in the United States and authorizes the Secretary to waive the requirement in the public interest.
- FHWA’s 1983 regulations (after notice-and-comment) expanded coverage to “all steel products” and exempted non-steel manufactured products because their multiple materials made tracing origin difficult.
- A 1997 FHWA memorandum clarified treatment of “manufactured products,” stating that FHWA did not apply Buy America to manufactured products generally but applied it to steel components of predominately-steel products; “predominately” was not defined.
- In the 2012 Memorandum FHWA announced two changes: (1) a 90-percent steel-or-iron content threshold to treat a manufactured product as "predominately" steel/iron (the 90-Percent Threshold); and (2) a blanket exemption for “miscellaneous steel or iron” off-the-shelf components (the Miscellaneous Products Exemption).
- Plaintiffs (a union, several manufacturers, and an industry association) sued under the APA and the Regulatory Flexibility Act, arguing both exemptions are substantive rules adopted without required notice-and-comment, are arbitrary and capricious, and violated statutory notice requirements for waivers.
- The district court granted plaintiffs summary judgment, vacated both the 90-Percent Threshold and the Miscellaneous Products Exemption, and remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 90-Percent Threshold was a substantive rule requiring notice-and-comment under APA §553 | The 90% number is a new, binding numeric rule that does not fairly flow from earlier guidance and thus is substantive | The threshold merely interprets “predominately” from the 1997 memorandum and is interpretive | Held substantive — FHWA must have used notice-and-comment; the 90% figure does not flow from prior documents |
| Whether the 90-Percent Threshold is arbitrary and capricious under APA §706 | The threshold lacks record support and reasoned explanation and so is arbitrary | The threshold is reasonable judgment derived from FHWA experience and avoids “gaming” | Held arbitrary and capricious — no explanation or record support for choosing 90% |
| Whether the Miscellaneous Products Exemption is interpretive or a new substantive waiver requiring notice-and-comment (and publication under statutory waiver rules) | The exemption is a new, blanket waiver that removes many steel/iron items from prior Buy America coverage and thus is substantive | The exemption is an interpretation of the 1983 manufactured-products waiver (e.g., traffic controllers) and does not create a new waiver | Held substantive — it conflicts with the 1983 expansion to “all steel products” and is a new waiver requiring notice-and-comment and statutory publication |
| Whether the Miscellaneous Products Exemption violated statutory notice/publication requirements for Buy America waivers (TCA 2008 / CFCAA 2011) | FHWA failed to publish detailed justification and provide public comment as required for new waivers | FHWA contends the action was interpretive and therefore not a new waiver subject to those statutes | Held violation — FHWA conceded notice is required for new waivers and the court found this was a new waiver not properly published or noticed |
Key Cases Cited
- Catholic Health Initiatives v. Sebelius, 617 F.3d 490 (D.C. Cir. 2010) (numerical rule that cannot be derived from prior text is substantive and requires notice-and-comment)
- Hoctor v. United States Dep’t of Agric., 82 F.3d 165 (7th Cir. 1996) (agency choices of arbitrary numeric standards are legislative and require rulemaking)
- Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (arbitrary-and-capricious standard: agency must supply reasoned analysis and rational connection between facts and decision)
- Am. Trucking Ass’ns v. Fed. Motor Carrier Safety Admin., 724 F.3d 243 (D.C. Cir. 2013) (vacatur of agency rule where record lacked justification for application in a particular context)
- Am. Hosp. Ass’n v. Bowen, 834 F.2d 1037 (D.C. Cir. 1987) (discussion of APA §553 and notice-and-comment requirements)