Regulatory Vacation: Next Steps After Winning An APA Challenge

Federal[1] agencies adopted three thousand, two hundred, and seventy-three final rules in 2021 alone.[2] With each rule that was adopted, the Administrative Procedure Act (“APA”) required the Federal Government to follow the appropriate steps when reaching its conclusions about what rules and regulations the agencies should create. When agencies fail to take those steps, parties affected by the rules can challenge the agency action under the APA. Winning such a challenge under the APA is a hurdle in and of itself. But, what follows from the victory, whether the agency’s regulation is vacated or remanded, can cause even more problems depending on the industry. Thus, it is necessary to evaluate your remedy options when challenging an administrative action and determine whether it is better for your case to seek a remand with or without vacatur.

Plaintiffs can challenge agency actions under the APA on a variety of grounds, arguing that an action is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.”[3] In other words, the procedure the agency used was deficient. The plaintiff must show that as a result of a final, deficient agency action, their interest was injured.[4] That being said, the arbitrary or capricious standard is narrow and highly deferential to the agency, permitting courts to overturn an agency action only if the agency action is not supported by “substantial evidence in the administrative record.”[5]

But, even if a plaintiff is successful in establishing their injury from the agency action and meeting the arbitrary or capricious standard, winning under the APA does not signal the end of the battle. After a court finds an agency’s action is unlawful, the agency usually has another chance to promulgate a rule. If a court chooses to remand a rule back to an agency, it can remand and vacate or remand without vacatur.

When the court vacates an agency action, it annuls the rule or regulation coming out of the agency, rendering whatever effect the regulation or adjudication had void.[6] On its face, vacatur may appear the more beneficial remedy. When a plaintiff challenges an agency action, it is reasonable to assume that voiding the agency action would be the best outcome for the aggrieved plaintiff. After all, plaintiffs who challenge an agency action for a deficient procedure under the APA need to show some harm or injury suffered by the action.[7] However, remanding and vacating creates a vacuum of regulation in the practice area. Consequently, there are instances in which eliminating a rule altogether, before replacing it with a new, adequate rule, will cause more harm than good. For example, some industries may require some regulation to be in place in order to be permitted to operate. In such a situation as this, vacatur may shut down the industry, an even worse outcome than the challenged rule going into effect.

Thus, the alternative remedy, remand without vacatur, might be more attractive. This is the less unusual, less frequently used solution courts employ. When a court remands without vacatur, the regulation goes back through the agency’s rulemaking process, but the effects of the regulation stay in place.[8]

If the process is deficient, why would courts permit the harmful regulation to remain in effect?[9] Remanding without vacatur, although rare in frequency, typically is applied in cases where the vacuum of regulation would cause more harm to the overall industry than allowing the regulation to remain in place while the agency corrects its errors. The seminal case on the matter is Allied-Signal v. NRC.[10] There, the Nuclear Regulatory Commission (NRC), at the direction of Congress, allocated 100% of its costs from those who used its services and exercised its discretion allocating costs even for users who could not reasonably pay the costs “regulatory services.”[11] Allied-Signal, among others, challenged the NRC’s decision, alleging that the NRC failed to consider the users’ ability to “pass through” its costs while still being competitive, since Allied-Signal, a converter of uranium, had to compete with foreign converters.[12] More specifically, Allied-Signal argued that it and converters like it should be given an exemption from the cost allocation rule like educational institutions were given.[13] After finding the NRC wrongfully denied the converters’ request for an exemption, the court then turned to whether the NRC’s rule should be vacated.[14] In doing so, the court weighed the harm of vacating the rule and the NRC’s potential justification for the rule against the harm of not vacating.[15] Specifically, vacating a rule which allocated 100% of the costs among users would require the NRC to refund all the users before making a new allocation, disrupting the entire industry.[16] To avoid this, the court remanded without vacatur.

The Allied-Signal test requires courts to consider two factors: the deficiency of the action and the disruption of vacatur.[17] However, the court in Allied-Signal did not specify what kind of disruption warrants remand without vacatur. As a result, subsequent courts have struggled with identifying the necessary kind of harm in remanding without vacating.

On the one hand, courts in the D.C. Circuit reject the use of economic interests when applying the Allied-Signal test in environmental cases. For example, in Standing Rock Sioux Tribe v. U.S. Army Corps of Eng’rs, the district court found the Corps’ approval of the Dakota Access Pipeline Project had three major deficiencies in its process, all of which specifically related to the environmental impact of the pipeline.[18] The court remanded the matter two weeks after the pipeline became fully operational but held a separate hearing to determine whether to vacate the Corps’ environmental determinations.[19] In response, the Corps argued that the economic impact of vacatur would be devastating.[20] The court gave little weight in the Corps’ claims of economic disruption, noting that “denying vacatur on the basis of alleged economic harm risks” creating improper “incentives for future agency actions.”[21]

The D.C. district court also rejected economic interests in PEER v. U.S. Fish & Wildlife Serv., the D.C. district court found a FWS order deficient and ultimately vacated the order.[22] In doing so, the court noted that “it [was] not clear that economic concerns [were] as relevant in an environmental case like this one,” and found that “[a]bsent a strong showing . . . that vacatur will unduly harm economic interests” of the regulated industry, economic disruption was insufficient to deny vacatur.[23] From this perspective, courts in the D.C. Circuit seem to require the kind of disruption to be the same as the kind of industry the agency is regulating.

On the other hand, courts outside the D.C. Circuit have relied on the economic needs underlying an agency action when applying the Allied-Signal test in environmental cases. For example, in Cook Inletkeeper v. Raimondo, a district court in Alaska found errors in an agency’s approval of oil and gas drilling in an environmentally sensitive inlet.[24] When examining the disruptive factor of the Allied-Signal test, though, the district court of Alaska focused first on the economic need for natural gas in southern Alaska.[25] Although the district court did rely in part on the environmental disruption vacatur would cause, the more persuasive argument stemmed from the jobs and revenue that would be lost as a result of vacatur.[26]

Identifying a legitimate basis to challenge an agency action can be substantially difficult on its own. Obtaining the desired remedy while minimizing the disruption a plaintiff experiences can be just as difficult. Thus, it is crucial to identify the end result a plaintiff seeks when bringing such a challenge and determine whether vacating the agency action may cause more harm than good.

If you are trying to navigate the hurdles that come with challenges under the APA or need help evaluating your remedy options, do not hesitate to contact the attorneys at Eckland & Blando LLP.