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United States . Caterpillar

September 5, 2002

UNITED STATES OF AMERICA, PLAINTIFF,
v.
CATERPILLAR, INC., 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

MEMORANDUM OPINION AND ORDER

Before the court are the motions of defendants Detroit Diesel Corporation ("DDC") and Caterpillar, Inc. ("Caterpillar"), manufacturers of heavy-duty diesel engines, seeking review and modification of the consent decree entered by this court three years ago to settle claims brought against them by the Environmental Protection Agency ("EPA"). *fn1 In the enforcement actions settled by the decree, EPA claimed that defendants and other engine manufacturers 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. A key component of the decree requires defendants to meet by October 1, 2002, engine emissions standards that will not otherwise be applicable until January, 2004. Defendants now seek a modification that will postpone this "pull ahead requirement" on the grounds that unanticipated cost increases make compliance with the decree substantially more onerous while reducing its benefits to the public. In addition, Caterpillar seeks to prevent EPA from applying its recently established non-conformance penalties ("NCPs") for Model Year 2004 to Caterpillar for failure to meet the October 2002 deadline. Caterpillar also challenges EPA's approval of certain emission control strategies developed by other engine manufacturers to comply with the decrees. Upon consideration of the motions, the opposition thereto, and the record of the cases, the court concludes that defendants' motions must be denied.

I. 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 by 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 the enforcement actions brought against defendants and other engine manufacturers, *fn3 EPA alleged that from 1987 to 1998 the 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"). According to EPA's allegations, the defeat devices achieved this effect through altering the engines' fuel injection timing during highway operation. The fuel injection timing used in the FTP, however, remained the same, and therefore the defeat devices were not detected during testing. The effect of the altered timing was to improve fuel economy at the expense of increasing NOx emissions.

Defendants argued that EPA's regulations during this period did not clearly prohibit the fuel injection timing strategies they were using. Following a year of negotiations, the parties reached a settlement by agreeing to be bound by the consent decree. After a period of public comment, the court approved the decree on July 1, 1999, finding that the decree would serve the public interest. Defendants thus avoided, without admitting liability, the possibility that their existing engines would fail to receive EPA certification, a circumstance that would have caused an immediate shutdown of their assembly lines.

The decree required the phased-in manufacture by defendants of lower-emission engines without defeat devices. Because defendants asserted that they could not immediately eliminate the defeat devices without making the new engines they would produce unmarketable, see Consent Decree ¶ 9, the decree gave them until October 1, 2002, to develop the new engines, during which time they could continue to sell their old ones. In exchange for this delay in enforcement, all new engines sold by defendants as of October 1, 2002, must meet an emission standard of 2.5 g/bhp-hr. NOx (the "2.5 gram" or "pull ahead" requirement). *fn4 Under otherwise applicable law, defendants would not be subject to this standard until January 1, 2004, fifteen months later. See 40 C.F.R. § 86.004-11(a)(1)(I). The pull ahead was intended to partially offset the alleged excess emissions from the engines defendants sold during the years prior to the decree and the three years between the entry of the decree and the deadline for elimination of the defeat devices. In turn, setting both deadlines for the same date allowed defendants to develop their new engines to simultaneously meet both requirements, rather than going through the design process twice. At the time the decree was entered, EPA projected that the pull ahead would achieve a 1.2 million ton reduction in NOx emissions over twenty-five years.

The decree provided that if defendants were not able to meet the October 1, 2002, deadlines, they could continue to sell non-compliant engines through three mechanisms: 1) payment of Non-Conformance Penalties ("NCPs"), which would be calculated to correspond to the cost of compliant engines so as to maintain a level playing field between defendants and those engine manufacturers who met the deadline; 2) utilization of emissions averaging, banking, and trading ("ABT"), by which defendants can generate emissions credits towards compliance though reducing emissions in other areas; and 3) a limited provision allowing post-deadline sales of non-compliant engines through matching pre-deadline sales of compliant engines. EPA issued its proposed rule for NCPs for the 2004, 2.5 gram standard in January, 2002, and issued its final rule on August 2, 2002.

Each engine manufacturer subject to a decree is required to designate an independent monitor to file regular progress reports with EPA. Following entry of the decrees, all of the engine manufacturers initially indicated to EPA that they were developing an emission control system called "cooled exhaust gas recirculation" ("EGR") in order to achieve the 2.5 gram requirement. EPA discussed with the manufacturers the kinds of AECDs these EGR systems would require. At the December 13, 2000, status conference before this court, DDC indicated that, although it had concerns regarding insufficient lead time for customer testing of its new engines, it still planned to meet the October 2002 pull ahead deadline using the EGR technology. EPA became concerned, however, that the AECDs the manufacturers were contemplating did not adequately address problems associated with the EGR technology, including problems with condensation, overheating, and air handling, and would therefore undermine the emissions benefit of the pull ahead engines. EPA expressed these concerns in a letter to the manufacturers in January, 2001. Meanwhile, defendants and several other engine manufacturers had approached EPA to request an amendment to the decrees postponing the deadline, and negotiations were underway.

In March, 2001, Caterpillar announced its decision to forego the EGR technology in favor of developing another emission control strategy called advanced combustion reduction technology ("ACERT"). Then on April 17, 2001, Cummins announced that it would meet the October 2002 deadline by using the EGR technology. Shortly thereafter, Mack Trucks announced that it also would meet the deadline using EGR. On June 5, 2001, EPA advised all the manufacturers that it could not agree to an amendment to the consent decrees that would modify the October 2002 deadline.

Those manufacturers who still sought to use EGR technology continued their engineering efforts to address EPA's concerns regarding developing AECD's to regulate condensation, overheating, and air handling. Based on the substantial progress made by the manufacturers as of the spring of 2002 and based on EPA's further understanding of the AECDs, EPA no longer viewed the manufacturers' AECDs as problematic. Therefore, on March 4, 2002, EPA advised Cummins, DDC, Mack, Renault and Volvo that their AECDs would likely be approved, but that final action would await a full review of each manufacturers' certificate applications.

On April 1, 2002, EPA approved Cummins' application for Certificates of Conformity for two engine families that employ EGR. This approval includes the limited use of the AECDs, which Caterpillar challenges in this action. On July 16, 2002, EPA issued a Certificate of Conformity to Mack for a compliant engine which will also employ limited use of the challenged AECDs. Caterpillar has two pending applications for certification of its "bridge engine," which will not meet the 2.5 gram standard and will require payment of NCPs. Caterpillar also seeks EPA approval of AECDs for its bridge engines, although the AECDs are different from those that it challenges in its motion currently before the court.

On February 28, 2002, DDC invoked the decree's dispute resolution provision by notifying EPA of a dispute regarding whether the decree's pull ahead requirement continued to serve the public interest. Caterpillar invoked dispute resolution in March, 2002, notifying EPA of the same dispute regarding the pull ahead requirement, as well as its dispute regarding the application of the 2004 NCPs under the decree and EPA's approval of its competitors' AECDs. After a period of informal negotiations, defendants invoked formal dispute resolution on May 10, 2002, by providing EPA with a formal Statement of Positions ("SOPs"), to which EPA responded with its own SOPs. The SOPs of both DDC and EPA included various expert analyses.

II. ANALYSIS

A. Standard of Review

1. Interpretation of Decree

Consent decrees are treated as contracts and interpreted under principles of contract law. See, e.g., United States v. Western Elec. Co., 900 F.2d 283, 293 (D.C. Cir. 1990). Caterpillar argues that the decree should be interpreted to bar EPA from subjecting Caterpillar to the recently established 2004 NCPs for its failure to meet the October 2002 deadline. Caterpillar also argues that the decree should be interpreted to bar EPA from granting approval to certain AECDs used by its competitors in their pull ahead engines.

2. Modification of Decree

A court may modify a consent decree "only if the general rules governing judicial revision of judgments are satisfied." United States v. Western Elec. Co., 46 F.3d 1198, 1202 (D.C. Cir. 1995). Under Rule 60(b)(5) of the Federal Rules of Civil Procedure, a court may provide relief from a final judgment when "it is no longer equitable that the judgment should have prospective application." Fed. R. Civ. P. 60(b)(5). Such relief is not warranted, however, merely because a party finds that "it is no longer convenient to live with the terms of a consent decree." Rufo v. Inmates of Suffolk County Jail, 502 U.S. 367, 383 (1992).

Requests to modify consent decrees are to be approached with caution. As the D.C. Circuit has noted, modification of a judgment "'is an extraordinary remedy, as would be any device which allows a party ... to escape commitments voluntarily made and solemnized by a court decree.'" NLRB v. Harris Teeter Supermarkets, 215 F.3d 32, 35 (D.C. Cir. 2000) (quoting Twelve John Does v. District of Columbia, 861 F.2d 295, 298 (D.C. Cir. 1988)). The party seeking modification therefore bears the burden of showing that: 1) changed factual conditions have made compliance with the decree "substantially more onerous;" 2) the decree has ...


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