Can a Federal Court Vacate a Regulation Without First Concluding It Was Unlawful?

A Ninth Circuit opinion concludes that when a federal agency seeks a voluntary remand of a contested rule, that is not enough to vacate the regulation.

Among the Trump Administration's more controversial regulations was an Environmental Protection Agency rule that narrowed the ability of states to block projects by denying certification under Section 401 of the Clean Water Act. This rule was intended to make it more difficult for states to block infrastructure projects by refusing to certify that granting a federal permit or license would not prevent attainment of a state's water quality standards.

As one would expect, blue states and environmental organizations challenged the Trump EPA's Section 401 rule. Because the rule was not issued until July 2020, the challenges were still pending in district court when the Biden Administration entered office. As one woud also expect, the Biden Administration announced in June 2021 that it would reconsider the Trump EPA's 401 rule.

In light of its plan to reconsider the 2020 rule, the EPA asked the district court for a voluntary remand. As is common with such requests, the EPA also asked the district court to leave the rule in place while it was being reconsidered. The plaintiffs, however, disagreed, and argued that the district court should either deny the remand request or grant it in conunction with an order vacating the rule. The district court adopted the latter course, leading to this appeal. (Also of note, the Supreme Court also stayed the district court's order vacating the rule, by a vote of 5-4, pending the outcome of the appeal.)

Today, in American Rivers v. American Petroleum Institute, a unanimous panel of the U.S. Court of Appeals for the Ninth Circuit concluded that the district court exceeded its authority in vacating the rule. Judge Michelle Friedland wrote for the court, and summarized her decision this way:

When a federal regulation is challenged in court, the promulgating agency may ask the court to remand the regulation to the agency for an opportunity to reevaluate it and correct any errors. Courts often grant such voluntary remands without ruling on the lawfulness of the challenged regulation. The question we face today is whether a court granting a voluntary remand may also vacate the regulation without first holding it unlawful, as the district court did here. We hold that courts lack the authority to do so, and we therefore reverse.

As Judge Friedland explained in a clear and concise opinion, the district court lacked the authority to vacate the regulation without first ruling on its lawfulness. There is no shortcut to vacating a rule.

When an agency's action is challenged in court, the agency will sometimes request that the court remand the challenged action—usually a regulation—so that the agency can correct any errors in the first instance. . . . For such a voluntary remand to be granted, "the agency ordinarily . . . need[s] to profess intention to reconsider, rereview, or modify the original agency decision that is the subject of the legal challenge." . . . Voluntary remands conserve judicial resources by allowing agencies to correct their errors before courts reach merits determinations requiring them to do so. . . . Courts retain "broad discretion" in deciding whether to grant a voluntarily requested remand but have "generally grant[ed] an agency's request for voluntary remand unless the request is frivolous or made in bad faith." . . .

Plaintiffs argue that principles of equity support pairing the authority to grant a voluntary remand (which usually occurs without a merits decision) with a corresponding authority to vacate the challenged rule during a voluntary remand. Otherwise, Plaintiffs assert, voluntary remands could lead to inequitable consequences: While an agency reassesses the challenged rule on remand, a plaintiff may be forced to live with a rule that it contends is unlawful. In short, Plaintiffs contend that if voluntary remands before merits determinations exist, so too must the authority to vacate a challenged rule in the interim.

Plaintiffs' argument overlooks that federal courts do not have unlimited equitable authority. As the Supreme Court has explained, the equitable authority of the federal courts extends only so far as that which the courts of equity in England traditionally exercised "at the time of the separation" between the United States and England. . . . Plaintiffs have pointed to no legal precedent or historical examples suggesting that courts of equity were empowered to vacate an executive action not first held to violate the law, and we are aware of none.

Precedent instead suggests that permanent equitable remedies can be awarded against only illegal executive action. And illegality, of course, requires establishing that there has been (or will be) a violation of the law. . . .

Moreover, even if Plaintiffs could point to some precedent supporting a court's authority to vacate executive action without a merits ruling, we read the APA as foreclosing any authority of courts to vacate agency actions not first held unlawful. . . .

By granting courts authority to "set aside" agency actions "found to be" unlawful, . . . the APA not only expressly explains when a court may set aside agency action (upon a holding of unlawfulness), it also implicitly explains when a court cannot (without a holding of unlawfulness). . . .

In addition, the APA defines rulemaking as the "agency process for formulating, amending, or repealing a rule." 5 U.S.C. § 551(5) (emphasis added). The Supreme Court has interpreted that provision as requiring that "agencies use the same procedures when they amend or repeal a rule as they used to issue the rule in the first instance." . . . Endorsing the practice of voluntary-remand-with-vacatur where there is no merits ruling would essentially turn courts into the accomplices of agencies seeking to avoid this statutory requirement, as it would allow agencies to repeal a rule merely by requesting a remand with vacatur in court. Because Congress set forth in the APA a detailed process for repealing rules, we cannot endorse a judicial practice that would help agencies circumvent that process.

On this basis, the Ninth Circuit sent the case back to the district court for further proceedings, leaving the Trump EPA Section 401 rule in place, at least for the time being.

An addendum: This opinion, like other opinions by Judge Friedland that I have read, is quite good. It addresses a complicated subject in a concise and direct fashion, seeking to apply relevant legal rules in a clear and principled fashion. She is definitely one of President Obama's more impressive and effective judicial appointees.