What Happens Next to Earthjustice's Demand for CBI Reassertion and Resubstantiation?

The designation and treatment of Confidential Business Information (“CBI”) is frequently at the center of the Toxic Substances Control Act (“TSCA”) reform debate.  One issue receiving increased attention is whether chemical companies should be required to reassert or resubstantiate their CBI claims after an extended period of time has passed since the information was originally submitted to the U.S. Environmental Protection Agency (“EPA”).

The latest development on this front occurred on August 21, 2014, when Earthjustice filed a petition for rulemaking with EPA asking that the agency limit the duration of any CBI claim made under section 14 of TSCA[1] to no more than five years unless, prior to such deadline or “sunset,” the company reasserts its designation by showing that the information still qualifies as CBI.[2]  Earthjustice argues in the petition that, without such a requirement, CBI claims remain in effect indefinitely, including those that may have been improperly made in the first instance or where, although initially justified, have since lost their CBI status (e.g., where the chemical company subsequently discloses the information to the public).

While recent legislative proposals aimed at TSCA reform would call upon companies to justify their CBI claims and include options for renewing designations on a periodic basis,[3] it remains to be seen whether EPA will exercise its current authority to grant Earthjustice’s petition and, if the agency does so, what approach a proposed rule would ultimately take.  At this early stage of the process, however, we can still make some general observations regarding (i) the timing of EPA’s response to the petition, and (ii) the hurdles facing any stakeholder who, in the event a final CBI rule is promulgated, wishes to challenge such regulation in court.

Timing of EPA’s Response

The petition comes on the heels of a series of postings by EPA in the Unified Agenda beginning in 2011 on the agency’s plans to propose a rule that would require chemical companies to periodically reassert and resubstantiate their CBI claims.  EPA did not specify a particular sunset period in those postings, but it did note that a CBI designation would automatically expire if the chemical company fails to renew its claim by a set deadline.[4]  Despite statements made by EPA indicating that a proposed rule would be issued as early as 2012, no proposal has appeared in the Federal Register.  In EPA’s most recent posting, which was released in Spring 2014, the agency listed August 2014 as the action date for a proposed rule.  That date has now passed.  Earthjustice representatives recently indicated in the trade press that the petition is designed to spur the agency to action on this matter.[5]

One factor that might impact the timing of EPA’s response is the statutory authority under which Earthjustice filed its petition.  Typically, when a citizens’ group files a petition for rulemaking under TSCA, it relies on section 21 of the statute.[6]  The advantage of proceeding under that provision is that EPA is given only 90 days to either grant or deny the petition, and in the event that the request is granted, the agency must “promptly commence an appropriate proceeding.”  Section 21, however, only applies to rulemakings under specified sections of TSCA, none of which include CBI issues addressed under section 14.

As a consequence, Earthjustice was forced to submit the petition under an alternative authority provided by section 4 of the Administrative Procedure Act (“APA”).[7]  The disadvantage of this approach, at least from Earthjustice’s perspective, is that the APA does not impose any hard deadlines on agencies for responding to petitions for rulemakings or issuing a proposed rule.  Rather, in this case, EPA will only be subject to the general APA requirements that it respond to a petition “within a reasonable time”[8] and that its response cannot be “unreasonably delayed.”[9]  Under applicable case law these are imprecise concepts and, as a result, EPA has some flexibility in the amount of time it takes to respond.

If EPA does not address Earthjustice’s petition, the group could file a federal lawsuit under the APA asking the court to compel the agency to respond.  The strength of Earthjustice’s complaint will depend on the length of the delay and the underlying facts of the case.  Earthjustice will not be able to simply point the court to a statutory deadline for issuing a decision on the petition.  A court will, instead, likely consider a range of factors when deciding whether there has been undue delay.  These would include how an expedited rulemaking could impact competing agency priorities, whether the agency has allocated limited resources elsewhere, or the complexity of the issues underlying the contemplated rule.[10]

In fact, EPA invoked this type of rationale when responding to inquiries made by the agency’s Office of Inspector General (“OIG”) regarding a potential CBI rule.  OIG had previously recommended that EPA establish a time limit for CBI requests and asked for a status update in January 2013.  In response, while EPA acknowledged that it was working on such a regulation, it informed OIG that recent delays were “due to further senior management discussions leading to a decision to develop a more complex and comprehensive rule.”  EPA has now told OIG that a rule will be proposed by September 30, 2014.[11]

Although EPA has not met its self-imposed deadlines in the past, there are some indications that the agency could address this issue soon.  Over the past half-decade, the agency has implemented several initiatives to decrease the number of existing and new CBI claims.  For example, it has declassified a substantial amount of information through a voluntary industry program.[12]  Moreover, in 2010, EPA adopted several policies aimed at limiting CBI claims associated with health and safety studies submitted under TSCA.[13]  Proposing a regulation requiring periodic reassertion or resubstantiation of CBI claims, therefore, would be consistent with these efforts.  Given the amount of time that EPA has apparently been considering this issue, the agency may now be in a position to propose a rule.

Nevertheless, it would not be surprising if no response is immediately forthcoming.  The agency might require still more time before it makes a decision on a proposed rule.  EPA, as noted above, has already provided some insight into prior delays, citing complexities in the potential rulemaking.  If the agency does not respond to the petition soon, and Earthjustice decides to force the issue in court, EPA’s continued deliberations are precisely the type of justification that a court will listen to when deciding whether to defer to the agency.[14]

Judicial Review Hurdles

If EPA proceeds with a rulemaking and a stakeholder decides to challenge the final regulation in court, the applicable standard of review could shape the nature and scope of the rule.  In this regard, it is important to note that TSCA’s judicial review provision, found at section 19, would not apply in this case.[15]  That provision only covers rules adopted under certain sections of the statute, which do not include a CBI rulemaking under section 14.  This is significant because TSCA’s judicial review provision instructs courts to apply a heightened level of scrutiny – called “substantial evidence” review – when evaluating certain EPA rulemakings.  The “substantial evidence” standard has been characterized as “fairly rigorous” and “more searching than the judicial review undertaken in most agency cases.”[16]

In this case, however, a court would likely apply a more deferential standard under the APA whereby it would uphold the rule unless it was found to be “arbitrary and capricious.”[17]  Here, the court would not set aside EPA’s rule if the agency has “considered the relevant factors and articulated a rational connection between the facts found and the choice made.”[18]  EPA will, therefore, be afforded more discretion by the courts with respect to the final rule’s provisions.  Of course, this is not to say that promulgating a CBI rule will be an easy task.  There are significant issues that will need to be resolved by EPA on which the chemical industry and citizens’ groups may disagree.  These include:

• Whether the rule should require a chemical company to provide substantive proof that its CBI claim is still valid (“resubstantiation”) or require the company to simply indicate that it still considers the information to be CBI (“reassertion”).
• How long should a CBI claim remain in effect before the sunset period applies?  5 years?  10 years?  Should it matter what type of CBI information is involved (e.g., chemical identity vs. production volumes)?

• Should a CBI claim automatically expire at the end of the sunset period even if EPA does not receive a response from the company prior to the deadline or should the rule require some type of affirmative response before any action is taken?  What precautions will be carried out before an automatic sun-setting of CBI takes place?

• To what extent, and in what form, should EPA provide notification to companies regarding the obligation to resubstantiate or reassert CBI claims?  What protections will be in place so that CBI is not inadvertently declassified and released to the public?

For EPA to survive any rulemaking challenge, the administrative record will need to show that the agency considered these and other issues, and that the agency has adequately explained the rationale underlying its decisions.

Please direct comments, questions, and discussions to the following partners at Keller and Heckman:  Eric Gotting at (202) 434-4269 or gotting@khlaw.com; or Herb Estreicher at (202) 434-4334 or estreicher@khlaw.com.