ROSEMARY M. COLLYER, District Judge.
Nalco Company sells OxiPRO,™ a system to aid in killing microbial growth in the manufacturing process of pulp and paper mills. After lengthy consideration and analysis, the Environmental Protection Agency concluded that the addition of ammonia or urea products to the sodium hypochlorite in the system resulted in a new and different pesticide from the chlorine solution itself. Thus, in December 2010 EPA determined that the ammonia and urea products sold within the OxiPRO system must be registered as "pesticides" under the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA"), 7 U.S.C. § 136-136y. Despite this conclusion, the EPA enforcement order that arose from this decision only prohibited Nalco from selling its ammonia- and urea-based products to new customers; it permitted on-going sales to existing customers. In March 2011, Nalco's competitors sued EPA, demanding that EPA stop Nalco's sales of ammonia and urea products altogether.
EPA argues that the Court has no jurisdiction to rule on its enforcement choices and, alternatively, that it has changed its enforcement posture from December 2010 to April 2011 for legitimate reasons. These arguments would have more force if EPA had not indicated at oral argument that it changed its position in part to level the commercial market between Nalco and its competitors. There is no basis in FIFRA for EPA to exercise its enforcement authority to balance markets; such a purpose
Nalco seeks to enjoin the April 18, 2011 Stop Sale Order issued by EPA.
Nalco is a process and water treatment solutions provider to customers in the energy, paper, and water industries.
The first chemical product in the OxiPRO system is a sodium hypochlorite "biocide" that kills microorganisms; it is registered under FIFRA and approved for this use by EPA. When added to water, sodium hypochlorite forms hypochlorous acid, an extremely reactive compound. The OxiPRO system introduces a second type of chemical product to reduce the reactivity of the acid; Nalco says that these products are proprietary "stabilizers" that are either ammonia- or urea-based. Neither party disputes that the "ammonia- and urea-based stabilizers used in the OxiPRO system do not have any biocidal activity themselves (that is, they do not kill microbes), nor are they registered as pesticides with EPA under FIFRA." Am. Compl. ¶ 21.
In developing the OxiPRO system, Nalco relied on an informal email exchange, dated September 8, 2005, in which EPA allegedly "confirmed that ammonia-based chlorine stabilizers do not require registration under FIFRA when used together with sodium hypochlorite." Id. ¶ 23. EPA advised that "[a]mmonia used in that manner is non-pesticidal." EPA Mem. in Support of Opp'n to Pl.'s Mot. for Prelim. Inj. ("EPA Mem.") [Dkt. #5], Ex. 5 (Emails). Because Nalco's ammonia- and urea-based stabilizers function in nearly identical ways, Nalco did not specifically inquire as to the status of urea-based stabilizers. Am. Compl. ¶ 23.
Thus, starting in 2007, EPA became caught in the middle of an ongoing fight for market share among Nalco, Buckman, and Ashland. EPA commenced a multi-year process to resolve whether ammonia- and urea-based products used in conjunction with sodium hypochlorite were pesticides that required registration under FIFRA. EPA did not interrupt Nalco's sales of ammonia- and urea-based products in the meantime. EPA convened multiple meetings to consider ammonia- and urea-based stabilizers and reviewed reams of submissions by Nalco, Buckman, and Ashland. In February 2010, EPA held an "Ammonia/Urea Meeting," "to discuss the competing petitions filed by the companies challenging the need for registration of ammonia and urea as pesticides (Nalco), and petitioning EPA to stop Nalco from marketing [its] ammonia and urea products (Ashland and Buckman)." See EPA Mem., Ex. 1 (Harrigan-Farrelly Decl.) at ¶ 18. EPA also opened a docket for public comment on whether or not ammonia and urea products for use in the pulp and paper industry should be required to be registered as pesticides. See id. at ¶ 19.
Only after a comprehensive review did EPA announce its conclusions in a December 16, 2010 Letter Determination:
EPA Mem., Ex. 8 (Dec. 16, 2010 Letter) at 2-4 (emphasis added). EPA concluded that Nalco must submit "full application packages" for its ammonia- and urea-based products within 30 days. Id. at 5. Nalco did so, and EPA committed to expedited handling of the application "by early summer." See EPA Mem., Ex. 1 (Harrigan-Farrelly Decl.) ¶ 38.
On December 16, 2010, the same day that EPA issued its Letter Determination, EPA also issued a Memorandum Response to Comments, which provided EPA's responses to comments submitted as part of the public proceeding. In response to a question regarding potential "environmental and human effects" posed by ammonia and urea as used by Nalco products, EPA stated:
EPA Mem., Ex. 10 (Response to Comments) at 6 (emphasis added).
On December 29, 2010, EPA issued its first enforcement order based on the December 16, 2010 Letter Determination. While the December 29 Order prohibited Nalco from selling its ammonia- and urea-based products to new customers, it also expressly permitted Nalco to continue to provide all of its existing customers with ammonia- and/or urea-based products, pending registration of the products as pesticides. Pl.'s Mot. for Prelim. Inj. [Dkt. #3], Ex. 2 (Dec. 29, 2010 Order) at 4.
Ashland sued EPA, challenging its December 29 Order and seeking to enjoin EPA from permitting Nalco to continue to sell its ammonia- and urea-based products to existing customers pending EPA registration. Months after issuing the December 2010 Order and days before issuing the April Stop Sale Order at issue here, EPA defended its December Order. EPA argued to the district court that it had made "eminently reasonable and lawful EPA enforcement choices" that were reflected in the December Order. Ashland Inc. v. EPA, 11-cv-487 (BAH), Defs.' Mem. in Suppt. of Mot. to Dismiss and Opp'n to Mot. for Prelim. Inj. [Dkt. #17] at 9 (filed Apr. 6, 2011). EPA further pointed out that Nalco had been selling ammonia- and urea-based products since 2007 and 2008, id. at 16, and asserted that EPA's December 2010 decision to allow Nalco to continue selling its ammonia and urea products "reflected a methodical, responsible, and meaningful enforcement approach that [was] neither arbitrary nor capricious." Id. at 20.
Shortly thereafter, EPA sent a new draft order to Nalco by which all sales of the urea-based products would be prohibited
On April 18, 2011, EPA finalized the draft and issued the Stop Sale Order that is challenged here. See EPA Mem., Ex. 3 (Apr. 18, 2011 Stop Sale Order). It required Nalco to "immediately" stop selling and servicing its urea products to existing customers; it gave Nalco 48 hours to notify its customers; and it restricted sales of the ammonia-based product to existing ammonia-based product customers. Id. ¶¶ 34-37. Because the April Stop Sale Order superseded the December Order, Ashland stipulated to the voluntary dismissal of its federal court action against EPA. See id., Stipulation of Dismissal [Dkt. #26].
Nalco then filed this suit against EPA. Nalco seeks a preliminary injunction against enforcement of the April Stop Sale Order, asserting that the Order is arbitrary and capricious.
When reviewing a motion to dismiss for lack of jurisdiction under Federal Rule of Civil Procedure 12(b)(1), a court must review the complaint liberally, granting the plaintiff the benefit of all inferences that can be derived from the facts alleged. Barr v. Clinton, 370 F.3d 1196, 1199 (D.C.Cir.2004). To determine whether it has jurisdiction over the claim, a court may consider materials outside the pleadings. Settles v. U.S. Parole Comm'n, 429 F.3d 1098, 1107 (D.C.Cir.2005). No action of the parties can confer subject matter jurisdiction on a federal court because subject matter jurisdiction is both a statutory and an Article III requirement. Akinseye v. District of Columbia, 339 F.3d 970, 971 (D.C.Cir.2003). The party claiming subject matter jurisdiction bears the burden of demonstrating that such jurisdiction exists. Khadr v. United States, 529 F.3d 1112, 1115 (D.C.Cir.2008).
While EPA contests the Court's jurisdiction to review its December 16, 2010, Letter Determination, it concedes jurisdiction over the April 18, 2011 Order. See EPA Mem. at 27. For purposes of its motion for a preliminary injunction, Nalco challenges only the April Stop Sale Order.
In making this argument, EPA relies on Heckler v. Chaney, 470 U.S. 821, 105 S.Ct. 1649, 84 L.Ed.2d 714 (1985), and Association of Irritated Residents v. EPA, 494 F.3d 1027, 1030 (D.C.Cir.2007). Under Heckler v. Chaney, an agency's decision not to prosecute or enforce is generally committed to the agency's discretion and where the governing statute is written "in such broad terms that ... there is no law to apply," the decision not to enforce is not reviewable. 470 U.S. at 830, 105 S.Ct. 1649; see also Ass'n of Irritated Residents, 494 F.3d at 1031-32 (applying Heckler to an agency decision to settle an enforcement action). That is, where an agency has decided not to take enforcement action and there are "no judicially manageable standards" available for judging how and when an agency should exercise its discretion, the decision not to enforce is not reviewable. Id.
Heckler and Association of Irritated Residents do not apply to affirmative enforcement action such as that at issue here. In cases where an agency decides to take enforcement action, "that action itself provides a focus for judicial review." Robbins v. Reagan, 780 F.2d 37, 47 (D.C.Cir. 1985). "[W]e begin with a presumption of reviewability, which is only rebutted by an affirmative showing that the statute's allocation of discretion is so broad that the courts simply have no standards to apply." Id. "Courts have a clear role to play in ensuring that an agency's practical implementation of its program is consistent with its own declared intentions and goals. Courts often have invalidated agency action because it simply did not comport with standards of rational decision-making given the agency's uncontested goal." Id. at 46. Furthermore, "an agency's change in direction from a previously announced intention is a danger signal that triggers scrutiny to ensure that the agency's change of course is not based on impermissible or irrelevant factors." Id. at 48.
The April Stop Sale Order is such a "change in direction from a previously announced intention." See id. In 2005, EPA indicated in an email that Nalco's ammonia-based product did not act as a pesticide. See EPA Mem. [Dkt. #5], Ex. 5 (Emails). EPA then reversed this view in a September 2007 email. Id. In its December 2010 Letter Determination, EPA took official action, finding that Nalco was required to file for pesticide registration of its ammonia- and urea-based products. The ensuing December 2010 Order permitted Nalco to continue sales to its current customers. Pl.'s Mot. for Prelim. Inj. [Dkt. #3], Ex. 2 (Dec. 29, 2010 Order) at 4. Then, in the April 2011 Stop Sale Order, EPA did another about face. It restricted sales of the ammonia-based product to existing ammonia-based customers only, and it required that Nalco stop sales of its urea-based products. See EPA Mem., Ex. 3 (Apr. 18, 2011 Stop Sale Order) ¶¶ 34-37. This change in course triggers the Court's scrutiny of whether EPA's decision was based on impermissible or irrelevant factors, whether it was in fact arbitrary and capricious. See Robbins, 780 F.2d at 48. In sum, the Court has jurisdiction to review the April 2011 Stop Sale Order.
A district court may grant a preliminary injunction "to preserve the
Winter v. NRDC, Inc., 555 U.S. 7, 129 S.Ct. 365, 374, 172 L.Ed.2d 249 (2008). The D.C. Circuit has further instructed that "the movant has the burden to show that all four factors ... weigh in favor of the injunction." Davis v. Pension Benefit Guar. Corp., 571 F.3d 1288, 1292 (D.C.Cir. 2009).
In the past, courts have balanced the four factors on a "sliding scale," i.e., a lesser showing on one factor could be surmounted by a greater showing on another factor. CSX Transp., Inc. v. Williams, 406 F.3d 667 (D.C.Cir.2005). Winter v. NRDC called this approach into question: "[i]ssuing a preliminary injunction based only on a possibility of irreparable harm [despite finding a strong likelihood of success on the merits] is inconsistent with our characterization of injunctive relief as an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief." Winter, 129 S.Ct. at 375-76. The D.C. Circuit has interpreted Winter to require a positive showing on all four preliminary injunction factors. Davis, 571 F.3d at 1292.
Nalco bases its request for a preliminary injunction on its claim that EPA acted arbitrarily and capriciously in violation of the Administrative Procedure Act "(APA"), 5 U.S.C. §§ 701-706. See Am. Compl., Count II ¶¶ 49-54. The APA provides a cause of action to a "person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action." 5 U.S.C. § 702. Review under the APA is limited to "final agency action" for which there is no other adequate remedy in a court. Id. § 704. A agency action is final when it "(1) marks the consummation of the agency's decision making process — it must not be of a merely tentative or interlocutory nature; and (2) the action must be one by which rights or obligations have been determined or from which legal consequences will flow." Domestic Secs., Inc. v. SEC, 333 F.3d. 239, 246 (D.C.Cir.2003) (internal quotation marks omitted); accord Bennett v. Spear, 520 U.S. 154, 178, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997); see also CSI Aviation Servs., Inc. v. Dept. of Transp., 637 F.3d 408 (D.C.Cir.2011) (final order issued in enforcement action was a final agency action subject to judicial review). The parties agree that the April Stop Sale Order was a final agency action.
The APA requires a reviewing court to set aside agency action that is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A); Tourus Records, Inc. v. Drug Enforcement Admin., 259 F.3d 731, 736 (D.C.Cir.2001). In making this inquiry, the reviewing court "must consider whether the [agency's] decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment." Marsh v. Oregon Natural Res. Council, 490 U.S. 360,
Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983). As the Supreme Court has explained, "the scope of review under the `arbitrary and capricious' standard is narrow and a court is not to substitute its judgment for that of the agency." Motor Vehicle Mfrs., 463 U.S. at 43, 103 S.Ct. 2856. Rather, the agency action under review is "entitled to a presumption of regularity" and the court must consider only whether the agency decision was based on relevant factors and whether there has been a clear error of judgment. Citizens to Pres. Overton Park, Inc. v. Volpe, 401 U.S. 402, 415, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971), abrogated on other grounds by Califano v. Sanders, 430 U.S. 99, 97 S.Ct. 980, 51 L.Ed.2d 192 (1977).
In cases involving scientific or technical decisions within the agency's area of expertise, the agency is entitled to a "high level of deference." Serono Labs., Inc. v. Shalala, 158 F.3d 1313, 1320 (D.C.Cir.1998). Judges are not "scientists independently capable of assessing the validity of the agency's determination." Id. at 1327. Instead of making an independent assessment, courts must hold the agency to the standards of rationality required by the APA. Id.
Here, EPA presents a tidy syllogism to counter Nalco's request for a preliminary injunction:
See EPA Mem. at 1. The syllogism would suffice were there not such a disconnect between EPA's decisions in December 2010 and in April 2011. In December 2010, after three years of study and consideration, EPA indicated that it did "not think that these uses of ammonia or urea are posing risks of concern." See EPA Mem., Ex. 10 (Response to Comments) at 6. For this reason, EPA permitted Nalco to continue sales to existing customers as spelled out in the December Order. On April 6, 2011 EPA defended the December Order as a "methodical, responsible, and meaningful enforcement approach that [was] neither arbitrary nor capricious." See Ashland Inc. v. EPA, 11-cv-487 (BAH), Defs.' Mem. in Suppt. of Mot. to Dismiss and Opp'n to Mot. for Prelim. Inj. [Dkt. #17] at 20. Despite the determination that there was little risk to using the ammonia and urea products and despite the determination that both products initiate a chemical reaction that results in
EPA offered the "several considerations" which led it to issue the April 2011 Stop Sale Order:
EPA Mem. at 14. The validity of these points is hotly contested. The Court need not dwell on the science involved — EPA is the Agency charged with scientific analysis — except to note the lack of reasoning behind the unspoken conclusion that urea-originated chloramine is more dangerous, questionable, or unknown than ammonia-originated chloramine. Given the similarity of the chemical substance created by the addition of ammonia and urea to sodium hypochlorite — on which EPA has based its entire finding that OxiPRO produces pesticides which must be registered — EPA's silence on this point is greatly troubling.
Even more troubling, however, is EPA's response when questioned by the Court for an explanation of its volte-face on enforcement other than the Ashland suit against EPA (a non-FIFRA-recognized basis for enforcement). EPA told the Court that it wanted to level the marketplace for competitors Ashland, Hercules, and Buckman, against whom Nalco had had a head start with an effective product, now requiring registration, in the pulp and paper industry. EPA indicated that it did not want to reward an ill-gotten market share by permitting Nalco to sell its ammonia product to anyone who was not a current buyer of such product.
Tr. May 6, 2011 at 26.
FIFRA does not give EPA jurisdiction to control or modify the marketplace. The
EPA contests any real harm to Nalco because it has alternative products to counteract slime in pulp and paper mills and its other business products generate substantial revenues. Nalco begs to differ. Nalco presents evidence that the cost and disruption to its customers' mills would be substantial and that, once forced to change its anti-slime system from OxiPRO, a customer would be unlikely to incur voluntarily such cost and disruption a second time to return to Nalco's product. See Pl.'s Mot. for Prelim. Inj., Ex. 4 (Ancona Decl.). EPA counters with an affidavit from Nalco's competitor Ashland, stating that Ashland has been able to replace OxiPRO at a former Nalco client without any such problems. See EPA Mem., Ex. 11 (Chaney Decl.) As Nalco points out, Ashland's affidavit is silent as to whether its replacement work was performed during a normal planned shutdown of a mill or a government-required abrupt stoppage. At oral argument, EPA was unable to provide further information, except to note that one major customer. International Paper, has already jumped from Nalco to Ashland due to this enforcement action. See Tr. May 6, 2011 at 38.
Nalco's evidence supports the conclusion that it has already, and will inevitably further, suffer the loss of "[l]ong-standing clients ... [that may be] unwilling, or unable, to do business" with Nalco hereafter if no injunction is issued. Feinerman v. Bernardi, 558 F.Supp.2d 36, 50-51 (D.D.C.2008). Since the relevant marketplace is not in a growth industry, Nalco has also demonstrated that "it will be difficult for [it] to attract new customers." Id. This shows at least some degree of irreparable injury. Id. Further, EPA's actions threaten a loss of sales and goodwill for which Nalco will have no right of recourse against the federal government. Where a plaintiff "cannot recover damages from the defendant due to the defendant's sovereign immunity ... any loss of income suffered by plaintiff is irreparable per se." Id. at 51; see also Hoffman-Laroche, Inc. v. Califano, 453 F.Supp. 900, 903 (D.D.C. 1978) (economic loss for which there is no corrective relief available is irreparable); Armour & Co. v. Freeman, 304 F.2d 404, 406 (D.C.Cir.1962) (finding the loss of goodwill and "loss of profits which could never be recaptured" constituted irreparable harm sufficient for equitable relief). The Court concludes that Nalco has sufficiently demonstrated irreparable harm to warrant equitable relief.
On the one hand, we have EPA's two responses to OxiPRO after years of study: its "methodical, responsible and meaningful" decision in December 2010 to ban sales of OxiPRO to new customers but allow continued sales to those customers
The public interest lies in enforcement of FIFRA and safety from dangerous pesticides to which it is directed. Public interest also lies in appropriate and reasoned enforcement of federal statutes. The public interest is not served to the extent EPA acted on the erroneous belief that it had the power and authority to level the marketplace among competitors. The public interest also is not served when the record fails to demonstrate some reasoned basis for an agency's enforcement position.
Agencies enforce federal laws with the exercise of their discretion. EPA certainly can exercise its discretion in how it chooses to enforce FIFRA according to the risks and harms any circumstance may present. As presented here, EPA explains its new enforcement posture as based on its unfamiliarity with urea-based products. That explanation does not carry much weight since the urea-based products and the ammonia-based product — which Nalco is allowed to continue to sell — produce the same chemical (chloramine) and EPA concluded that the risk was negligible after years of study. The Court finds that the public interest is best served by enjoining enforcement of the April 2011 Stop Sale Order, leaving the December 2010 Order in place, and remanding the matter to EPA to re-think its approach and, if it chooses, to provide a sufficient rationale for its actions.
The Court respects EPA's obligation to enforce FIFRA as it determines in its discretion. On this record, however, that discretion has been exercised for reasons not in furtherance of the statute and without a reasoned basis. Nalco's motion for preliminary injunction [Dkt. #3] will be granted. An injunction will issue to preclude enforcement of the April 2011 Stop Sale Order, the December 2010 Order will remain in effect, and the matter will be remanded to EPA to allow it to re-think its approach and, if it chooses, to provide a sufficient rationale for its actions. A memorializing Order accompanies this Memorandum Opinion.
