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United States v. Caterpillar

January 17, 2002

UNITED STATES OF AMERICA, PLAINTIFF,
v.
CATERPILLAR, INC., DEFENDANT.
UNITED STATES OF AMERICA, PLAINTIFF,
v.
CUMMINS ENGINE CO., DEFENDANT.
UNITED STATES OF AMERICA, PLAINTIFF,
v.
DETROIT DIESEL CORP., DEFENDANT.



The opinion of the court was delivered by: Henry H. Kennedy, Jr. United States District Judge

OPINION AND ORDER

The Truck Manufacturers' Association ("TMA"), a trade association representing manufacturers of heavy-duty trucks, *fn1 seeks to intervene in these enforcement actions brought by the Environmental Protection Agency ("EPA") against three manufacturers of heavy-duty diesel engines. EPA claimed in these actions that defendants violated the Clean Air Act, 42 U.S.C. §§ 7401, et seq., and its implementing regulations by selling engines that emitted excess pollution and by failing to disclose how the engines operated in real world conditions. This court approved consent decrees settling all of EPA's claims against defendants on July 1, 1999. The decrees require defendants to make changes to their new engine models by October 1, 2002, in order to reduce the emissions from those engines. In its motion to intervene, filed March 9, 2001, TMA argues that defendants have not made sufficient progress toward completing the new engines to ensure that the truck manufacturers represented by TMA will have adequate time to integrate the engines into new trucks by October 2002. TMA contends that this delay will cause a nationwide shutdown of truck manufacturing and a reduction in the number of new trucks available for purchase in fall 2002. TMA seeks to intervene in the decrees in order to postpone the October 2002 deadline or, in the alternative, challenge the validity of the decrees. Upon consideration of the motion, the opposition thereto, and the record of the case, the court concludes that TMA's motion to intervene must be denied.

I. FACTUAL BACKGROUND

These cases involve federal regulation of emissions of nitrogen oxides ("NOx") from heavy duty diesel engines. NOx is a pollutant that contributes to smog and airborne particles that adversely affect human health. The Clean Air Act (the "Act") sets standards for NOx emissions from heavy duty diesel engines and requires engine manufacturers to obtain a "Certificate of Conformity" with the standards for each engine family and each model year of engines they produce. An application for a Certificate of Conformity must be supported with data showing that a representative engine tested on EPA's Federal Test Procedure for Heavy Duty Engines ("FTP") complies with the Act's emissions standards. The application must also include a description of any "auxiliary emission control device" ("AECD") *fn2 installed on the engine that changes the engine's emissions when operated in real world as opposed to laboratory conditions. EPA uses the engine manufacturers' disclosure of AECDs in the application for certification to screen for "defeat devices," which are prohibited by Section 203(a)(3)(B) of the Act. Defeat devices are defined under the regulations implementing the Act as AECDs that "reduce the effectiveness of the emission control system under conditions which may reasonably be expected to be encountered in normal vehicle operation and use ...." 40 C.F.R. § 86.094-2. The purpose of the AECD reporting requirement and the defeat device prohibition is to ensure that an engine's emission performance in normal operating conditions is consistent with the test results used to support the certificate application.

In these enforcement actions EPA alleged that from 1987 to 1998 defendants sold heavy duty diesel engines equipped with defeat devices that increased NOx emissions in on-highway truck operation by two to three times the 4.0 gram per brake horsepower hour ("g/bhp-hr.") regulatory standard (the "4.0 gram requirement"). Defendants argued that EPA's regulations during this period did not clearly prohibit the specific types of emission control strategies they were using. Defendants also contended that EPA had known about these strategies since 1991, but had not claimed prior to commencing these actions in 1998 that an engine's emission control system must "function the same under all normal operating conditions." United States v. Cummins Engine Co., U.S. Memo. in Support of Consent Decree at 97-98. Following a year of negotiations between the parties, during which time EPA met with TMA several times to hear the concerns of truck manufacturers, the parties reached a settlement by agreeing to be bound by the consent decrees. After a period of public comment, including comments filed by TMA, the court approved the decrees on July 1, 1999, finding that the decrees would serve the public interest. Defendants thus avoided, without admitting liability, the possibility that their existing engines would fail to receive EPA certification, causing an immediate shutdown of their assembly lines.

The decrees required the phased-in manufacture by defendants of lower-emission engines without defeat devices. As of October 1, 2002, all new on-road heavy duty diesel engines manufactured and sold by defendants must meet an emission standard of 2.5 g/bhp-hr NOx (the "2.5 gram requirement"). *fn3 Under otherwise applicable law, engine manufacturers would not be subject to this standard until model year 2004. See 40 C.F.R. § 86.004-11(a)(1)(I). The "pull ahead" the 2.5 gram requirement thus entails was intended to partially offset the alleged excess emissions from the engines defendants sold in the years prior to the decrees.

The decrees have a "Force Majeure" provision, under which neither "technological unfeasibility" nor financial inability excuse a failure to meet the 2.5 gram requirement. To ensure that the 2.5 gram requirement is met under a broad range of operating conditions, the decrees provide that defendants must demonstrate compliance with the requirement not only on the FTP but on the "EURO III" test, which EPA claims measures emissions under conditions that are more representative of highway driving than the FTP. In addition, defendants must demonstrate that they meet a "Not-to-Exceed Limit," which means that at any operating point within a specified area an engine cannot exceed a certain emission level.

II. THE POSITION OF THE PARTIES

TMA moved to intervene on March 9, 2001, as a defendant in three of the six enforcement actions settled under the decrees, those against Caterpillar, Cummins, and Detroit Diesel. Three out of the eight truck manufacturers represented by TMA, GM, Isuzu, and Freightliner, have joined in the motion. In its motion, TMA contends that the October 1, 2002, deadline set in the decrees will harm its economic interests because defendants will not have solved the engineering challenges posed by the decrees' requirements in time for TMA's members to integrate defendants' new engines into new trucks prior to the deadline.

In declarations accompanying its motion, TMA asserts that major changes in a heavy duty engine require at least two years of redesigning and testing of the truck in which the engine will be used to ensure safety and reliability. At the time TMA filed its motion to intervene, 18 months prior to the October 2002 deadline, two of the defendants, Caterpillar and Cummins, claimed that they would complete their new engines by the deadline, but neither had obtained final EPA approval for the engines or submitted a compliant prototype engine to TMA's members for integration. Caterpillar had also informed GM that it would be deleting one engine model from its product line because of the challenges posed by the decrees' requirements. In addition, on February 5, 2001, the Chairman of Detroit Diesel wrote a letter to EPA stating that the October 2002 deadline was "now in serious jeopardy, due to the manufacturers' problems in testing the engines .... Failure to resolve this problem will have major impacts on the engine manufacturers, related suppliers and industries, and the economy generally." The letter included an offer by Detroit Diesel "to consider committing to substantial additional emissions reduction measures, beyond what [Detroit Diesel] believes are needed to make a delay of the October 1, 2002 date emissions neutral ...."

TMA argues that these developments show that its members will not have the two years lead time they require to integrate defendants' new engines into their new trucks prior to October 2002. TMA further argues that even if that much lead time were not required and Caterpillar and Cummins were able to complete their new engines and obtain EPA approval for them by the deadline, Caterpillar and Cummins alone could not supply the entire truck manufacturing industry with engines should Detroit Diesel fail to meet the deadline. *fn4 In addition, according to TMA, the decrees make it illegal for defendants to supply non-compliant engines to truck manufacturers after the deadline, so TMA's members cannot make up for delays or shortages in new engines by continuing to buy old ones. Therefore TMA contends that the only way to a avert a shutdown of truck assembly lines across the nation and a reduction in new trucks on the market in fall 2002 is to modify the decrees to postpone the October 2002 deadline.

TMA also seeks to challenge the validity of the decrees on due process and statutory grounds. First, TMA contends that the October 2002 requirements violate the provision of the Clean Air Act providing that emission standards applicable to "heavy duty vehicles or engines" may not take effect prior to four model years after EPA promulgates the standards, and must remain in place for at least three model years. 42 U.S.C. § 7521(a)(3)(C). TMA argues that this provision guarantees truck manufacturers four years lead time to integrate new engines into their trucks, while the decrees do not guarantee any lead time. Under the decrees, as long as an engine manufacturer completes the required changes to its engines by October 2002, it has complied with the decree, regardless of the lead time remaining. Second, TMA contends that the decrees constitute an attempt by EPA to establish emission standards through adjudication, thus circumventing the notice-and-comment rulemaking required under Section 553 of the Administrative Procedure Act, see 5 U.S.C. § 553, and Section 307(d) of the Clean Air Act, see 42 U.S.C. § 7607(d). Finally, TMA contends that the decrees violate due process because they apply retroactive standards without fair notice.

According to TMA, the parties did not anticipate these problems with the decrees and have not brought them to the court's attention, thus necessitating TMA's intervention. In its briefings to the court, TMA proposes specific modifications to the decrees which it claims would keep the truck manufacturing industry in operation and comply with statutory and due process requirements, while still preserving the legitimate expectations of the parties to the decrees and the decrees' environmental benefits. TMA proposes that the decrees be modified to allow defendants an alternative means of compliance: rather than meeting the 2.5 gram requirement by the current October 2002 deadline, defendants would have the option of extending the deadline in exchange for paying for emission reduction programs that offset the increase in emissions caused by the extension. The extension could not go beyond January 2004 and would be limited to two years from the time defendants supply a prototype engine complying with the current October 2002 requirements to the truck manufacturers (thus providing the two years lead time needed for integration).

EPA, Cummins, and Caterpillar oppose TMA's intervention in these actions. These parties argue that the harm TMA alleges its members will suffer under the decrees is speculative, because even if defendants cannot complete the required changes to their engines in time for the truck manufacturers to integrate them into new trucks, the decrees allows defendants to continue selling non-compliant engines after October 2002 through paying Non-Compliance Penalties ("NCPs") or utilizing emissions averaging, banking, or trading ("ABT") *fn5 . Thus, the parties opposing TMA's intervention contend that they anticipated the possibility that some defendants would not meet the deadline and provided an alternative means of compliance so that those defendants could continue operating--i.e., keep selling engines to their customers, the truck manufacturers. Because these mechanisms for avoiding shutdowns in both engine and truck manufacturing are already built-in to the decrees, these parties contend that TMA's proposed modifications are unnecessary. These parties also point out that if defendants desire modifications to the decrees, they may seek the modifications themselves (one defendant, Detroit Diesel, has already approached EPA for this purpose). Thus, these parties contend that several paths remain available to defendants for achieving compliance with the ...


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