Posted by: Tim Dowling
In our August 21 post on the Ninth Circuit's recent ruling in Engine Manufacturers v. South Coast Air Quality Mgmt. Dist., we emphasized the practical, real-world benefits the ruling will bring to the many state and local governments that use fleet programs to improve air quality, reduce greenhouse gases, and otherwise promote human health and environmental protection. This follow-up post focuses on the interplay between the U.S. Supreme Court's 2004 ruling in the case and the Ninth Circuit's ruling on remand.
In the Los Angeles Basin, diesel exhaust accounts for 70% of the cancer-causing toxins in the air. In 1987, the California legislature authorized the South Coast Air Quality Management District to require state and local governments and certain privately-operated fleets in the Basin to purchase cleaner, alternative-fuel vehicles when adding or replacing vehicles in specified fleets. Using this authority, in 2000 and 2001 South Coast adopted rules requiring cleaner vehicles for public and private fleets such as urban buses, garbage trucks, airport shuttle and taxi fleets, street sweepers, and school buses. As a result of these rules, more than 6,000 clean-burning heavy-duty vehicles, powered by natural gas and other clean fuels, already have been added to the region's fleets.
The Engine Manufacturers Ass'n and others challenged the rules under section 209 of the federal Clean Air Act, which prevents state and local governments from adopting or enforcing any "standard relating to the control of emissions from new motor vehicles." South Coast argued that the term "standard" as used in the Act applies only to numerical limits imposed on manufacturers, but does not cover requirements imposed on purchasers. In its 2004 ruling, the U.S. Supreme Court disagreed, holding that the term "standard" is broad enough to encompass requirements imposed on purchasers. Importantly, however, the court did not invalidate the fleet rules, but instead remanded the case for further consideration of the rules. It expressly left open the question whether the Fleet Rules are valid to the extent they "can be characterized as internal state purchase decisions."
On remand, the federal district court upheld the fleet rules, and industry appealed to the Ninth Circuit. The appeals court affirmed, ruling that "the Clean Air Act does not preempt those provisions of the Fleet Rules directing state and local governmental entities' purchasing, procuring, leasing and contracting decisions." This is a huge victory because, as explained by South Coast, most applications of the rules concern public fleets, i.e., either vehicle fleets purchased and owned by local governments or fleets owned by private entities that provide services to local governments under contract.
In so ruling, the Ninth Circuit invoked the "market participant" exception to preemption. This doctrine, first developed under Dormant Commerce Clause jurisprudence but later applied to preemption analysis, is rooted in the sovereign authority of the states to control their own decisions in the marketplace, as well as those of their political subdivisions. The doctrine distinguishes the state's role as regulator from its role as market participant, with the latter being, in the words of the Ninth Circuit, "generally protected from federal preemption" due to the states' status as sovereigns and guardians for its people. As stated by the Supreme Court: "In the absence of any express or implied indication by Congress that a State may not manage its own property when it pursues its purely proprietary interests, and where analogous private conduct would be permitted, this Court will not infer such a restriction." Building & Constr. Trades Council v. Associated Builders & Contractors, 507 U.S. 218, 231-232 (1993).
One interesting aspect of the Ninth Circuit's scholarly analysis is how the court uses industry concessions during the oral argument before the Supreme Court to support its conclusions on remand. For example, after granting South Coast's request for judicial notice of the oral argument transcript (Opinion, footnote 2), the appeals court rejected industry's contention that the fleet rules are regulatory rather than proprietary. In addition to its persuasive legal reasons for nixing this argument, the court observed in footnote 4 of its opinion that "Appellants' arguments on this issue conflict with their counsel's concessions at oral argument before the Supreme Court," noting that both industry counsel and the Solicitor General (as amicus supporting industry) told the high court that the rules are not preempted to they extent they apply to state and local government purchases.
Likewise, in rejecting industry arguments that the market participant exception applies only to state control over state funds but not the actions of local governments, the Ninth Circuit quoted from the oral argument transcript to show that industry counsel advised the Supreme Court that states could control the marketplace decisions of their subdivisions. See Opinion, footnote 5.
For a third time, at the end of its opinion, the appeals court cited the oral argument transcript in observing that the manufacturers had brought a facial challenge to the rules, and that therefore substantial precedent governing facial challenges (e.g., United States v. Salerno, 481 U.S. 739 (1987)) supported the district court's decision to uphold the rules in their entirety. Ultimately, however, the Ninth Circuit remanded the case back to the district court to determine whether any provision of the rules falls outside the market participant exception and thus might be preempted. Because South Coast already has agreed not to enforce the fleet rules against private entities that are not under contract with state and local governments, any further tinkering on remand is likely to have little real-world impact.
It would have been understandable, in the face of the U.S. Supreme Court's 2004 ruling, for state and local governments to become a bit gun-shy about devising new fleet rule programs. And, of course, it remains to be seen whether industry once again seeks Supreme Court review of the Ninth Circuit's most recent handiwork. But the appeals court's comprehensive and scholarly analysis should survive any such review, and it should provide a huge margin of comfort for states and localities across the country to follow South Coast's lead and green up their fleets and those of their contractors. Many have already done so, and the others should get moving.