In 2017, the National Highway Transportation Safety Authority (NHTSA) delayed a scheduled increase in penalties imposed on automakers for failing to comply with Corporate Average Fuel Economy (CAFE) standards. Then, in 2019, NHTSA rolled back the penalties to their 1996 levels. Several blue states and environmental groups sued in the U.S. Court of Appeals for the Second Circuit. As luck would have it, the case was assigned to three judges appointed by President Donald Trump: Richard Sullivan, Michael Park, and William Nardini. So the Trump Administration should have won, right? Not so fast.
In a unanimous opinion issued today, the panel ruled that NHTSA’s reconsideration and reduction of the penalty was untimely and unlawful. Here is the beginning of Judge Nardini’s opinion for the court explaining the opinion:
During the oil crisis of the 1970s, Congress created a system of fuel economy standards for automobiles to boost fuel efficiency and drive down American dependence on foreign energy supplies. To promote those Corporate Average Fuel Economy (“CAFE”) standards, Congress exposed automobile manufacturers to penalties if their annual fleets fell short of the mark. Congress first set the penalty at $5 for every tenth of a mile per gallon (“mpg”) below the standard, multiplied by the number of cars in a manufacturer’s fleet, subject to certain offsets.
Inflation, however, can take the bite out of fines. In recognition of this basic economic phenomenon, Congress enacted laws in 1990, 1996, and 2015 to identify civil monetary penalties that were losing ground to inflation and to periodically update them to catch up with the Consumer Price Index. After the first act, the National Highway Traffic Safety Administration (“NHTSA”) and the Office of Management and Budget (“OMB”) identified the CAFE penalty as among those to be adjusted. Following the 1996 law, NHTSA engaged in rulemaking that increased the CAFE penalty rate from $5 to $5.50, and then, following the 2015 law, to $14.
NHTSA shifted gears, however, starting in 2017. First, it indefinitely delayed implementation of the increase to $14. Acting on a petition for review, this Court held that the delay violated NHTSA’s statutory authority and that the increase was therefore in effect for the 2019 model year. In 2019, following our decision, NHTSA issued a final rule that rolled back the penalty to $5.50 on the theory that the inflation-adjustment laws do not apply to the CAFE penalty in the first place, and that even if they did, an increase would be unwarranted as a matter of economic policy.
Following this latest move by NHTSA, we are presented with petitions for review that require us to answer two questions of statutory construction: (1) whether the penalty for violating the CAFE standards is a “civil monetary penalty” as defined in these inflation-adjustment laws; and, if so, (2) whether these laws authorized NHTSA to reconsider, in 2019, the 2016 catch-up inflation adjustment based on its economic effects. We hold that the CAFE penalty is a “civil monetary penalty” and that NHTSA’s reversal of the catch-up adjustment was untimely. Accordingly, we grant the petitions for review and vacate NHTSA’s final rule reversing the CAFE penalty increase.