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From Products Liability Law Daily, December 28, 2016

NHTSA partially grants petition for reconsideration of final rule adjusting civil penalty amounts for inflation

By Colleen Kave, J.D.

The National Highway Traffic Safety Administration (NHTSA) has published a final rule updating the maximum civil penalty amounts authorized for violations of the statutes and regulations it administers based on guidance provided by the Office of Management and Budget (OMB) in February of this year. The final rule takes effect on January 27, 2017. Additionally, NHTSA responded to a petition for partial reconsideration of the preceding interim final rule (81 FR 43524, July 5, 2016), granting it in part and amending the relevant regulatory text accordingly, and to a petition for rulemaking on a similar topic (NHTSA Final Rule, 81 FR 95489, December 28, 2016).

In July 2016, NHTSA issued an interim final rule (IFR) pertaining to civil penalty amounts under the authority of the Federal Civil Penalties Inflation Adjustment Act Improvement Act (the 2015 Act), Pub. L. 114–74, Section 701. The interim final rule included adjustments for all civil monetary penalties administered by the agency, including those prescribed by the Corporate Average Fuel Economy (CAFE) program, which provides standards for vehicle manufacturers that produce passenger cars and light trucks for sale in the United States. In accordance with the Act and OMB guidance, the updated penalty rate applicable under the CAFE program increased from $5.50 per tenth-of-a-mile per gallon (mpg) to $14 per tenth-of-an-mpg. NHTSA stated in an implementation guidance that it issued following the IFR that the agency intended to apply the $14 rate to any penalties assessed on and after August 4, 2016, beginning with penalties applicable to violations for model year 2015, and also applying to any violations from prior model years that resulted from recalculation of a manufacturer’s previous CAFE levels.

Petitions. The Auto Alliance and Global Automakers jointly petitioned NHTSA for reconsideration of the interim final rule with regard to the inflation adjustment for CAFE non-compliance penalties in August, 2016, asking NHTSA not to apply the penalty increase to noncompliances associated with "model years that have already been completed or for which a company’s compliance plan has already been set." In the alternative, the petition requested that if NHTSA decided to apply the penalty increase to model years 2014–2018, the agency should recalculate the adjusted penalty rate using 2007 as the "base year" for calculating the inflation adjustment. As another alternative, the petition sought a finding that immediately increasing the penalty to $14 would cause a "negative economic impact," thereby requiring a smaller initial penalty increase.

Additionally, in October, 2015, the Center for Biological Diversity (CBD) petitioned NHTSA to conduct a rulemaking to raise the civil penalty rate for CAFE standard violations under NHTSA’s then-existing statutory authority. The CBD petition stated correctly that NHTSA had not adjusted the $5.50 civil penalty rate for inflation since 1997, and requested that the agency follow the procedure laid out at 49 U.S.C. 32912(c) to undertake a rulemaking to raise the amount to the maximum then allowed by Congress, $10 per tenth-of-an-mpg. A month later, Congress changed the statutory landscape by enacting the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.

NHTSA’s response. NHTSA agreed with the Auto Alliance and Global Automakers that applying the $14 civil penalty rate to violations of CAFE standards in model years prior to the enactment of the Act would not result in additional fuel savings, and thus would seem to impose retroactive punishment without accomplishing Congress’ specific intent in establishing the civil penalty provision of the Energy Policy and Conservation Act ("EPCA"). Consequently, NHTSA decided to grant the Auto Alliance and Global Automakers’ petition in part and deny it in part. Beginning with model year 2019, NHTSA will apply the full penalty prescribed by the Act. NHTSA is required by the Act to continue adjusting the civil penalty for inflation each year, so the penalty rate applicable to model year 2019 and after fleets will be $14 per tenth-of-an-mpg, plus any adjustment(s) for inflation that occur between now and a violation’s assessment. NHTSA concluded that this decision also effectively addressed the issue raised by the CBD petition.

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