United States District Court, D. Columbia.
United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, et al., Plaintiffs,
Federal Highway Administration, et al., Defendants
UNITED STEEL, PAPER AND FORESTRY, RUBBER, MANUFACTURING,
ENERGY, ALLIED INDUSTRIAL AND SERVICE WORKERS INTERNATIONAL
UNION, NUCOR CORPORATION, MCWANE, INC., EJ USA INC., NEENAH
FOUNDRY, D& L FOUNDRY INC., EBAA IRON SALES INC., MUNICIPAL
CASTINGS ASSOCIATION, Plaintiffs: David Earl Frulla, Paul
Charles Rosenthal, LEAD ATTORNEYS, KELLEY, DRYE & WARREN,
LLP, Washington, DC; Shaun Michael Gehan, LAW OFFICE OF SHAUN
M. GEHAN, PLLC, Washington, DC.
FEDERAL HIGHWAY ADMINISTRATION, RAYMOND H. LAHOOD, in his
official capacity as Secretary of Transportation, ANTHONY
FOXX, in his official capacity as Secretary of Transporation,
Defendants: Jean-Michel Voltaire, LEAD ATTORNEY, U.S.
DEPARTMENT OF JUSTICE, Civil Division, Washington, DC.
Mehta, United States District Judge.
support the domestic steel and iron industries, Congress for
decades has required that steel or iron used in federally
funded highway programs be sourced from within the United
States, a mandate known as the " Buy America"
policy. Congress has empowered the Secretary of the U.S.
Department of Transportation to administer the Buy America
requirement, including granting him the authority to exempt
products from the policy where in the public interest. This
case concerns the Secretary's exercise of that exemption
December 21, 2012, the Secretary, acting through Defendant
Federal Highway Administration (" FHWA" ), issued a
two-page memorandum (the " 2012 Memorandum" )
announcing that he would not apply the Buy America
requirement to two broad categories of products: (1) steel or
iron " manufactured" products and (2) "
miscellaneous steel or iron" products. As to the first
category, a steel or iron " manufactured" product
is one that is made up largely, but not entirely, of steel or
iron. The 2012 Memorandum exempts from the Buy America
mandate steel or iron manufactured products that contain less
than 90 percent steel or iron (the " 90-Percent
Threshold" ). As a result, a manufactured product that
contains no more than 89.9 percent steel or iron now can be
obtained from a foreign source. As to the second category of
products, the 2012 Memorandum exempts all "
miscellaneous steel and iron" products, defined as those
products that are available " off-the-shelf" or are
" necessary to encase, assemble and construct"
manufactured products (the " Miscellaneous Products
Exemption" ). So, for instance, a faucet or bolt that is
made of 100 percent steel or iron now is exempt from the Buy
plaintiffs in this case are (1) a workers' union whose
members produce steel and iron products--United Steel, Paper
and Forestry, Rubber, Manufacturing, Energy, Allied
Industrial and Service Workers International Union; (2) six
individual manufacturers of steel and/or iron products--Nucor
Corporation; D& L Foundry Inc.; EBAA Iron Sales Inc.; EJ USA
Inc.; Neenah Foundry; McWane, Inc.; and (3) an association of
steel and iron products manufacturers--the Municipal Castings
Association. They filed suit against the FHWA and the
Secretary of the U.S. Department of Transportation, Anthony
Foxx, in his official capacity, alleging that both the
90-Percent Threshold and the Miscellaneous Products Exemption
violated the Administrative Procedure Act (" APA"
), 5 U.S.C. § 551 et seq., and the Regulatory
Flexibility Act, 5 U.S.C. § 601 et seq.
Specifically, Plaintiffs assert (1) that both the 90-Percent
Threshold and the Miscellaneous Products Exemption are "
substantive" rules that should have been subject to
notice and comment rulemaking under Section 553 of the APA;
(2) that both the 90-Percent Threshold and the Miscellaneous
Products Exemption are arbitrary and capricious, are not in
accordance with law, and did not observe procedure required
by law, in violation of Section 706 of the APA; and (3) that
the FHWA failed to publish the regulatory flexibility
analyses required by the Regulatory Flexibility Act. On these
grounds, Plaintiffs urge the court to declare unlawful and
invalidate the 2012 Memorandum.
the court are Plaintiffs' and Defendants'
Cross-Motions for Summary Judgment. After considering the
parties' arguments and the administrative record, the
court finds that both the 90-Percent Threshold and the
Miscellaneous Products Exemption violate the APA. The
90-Percent Threshold is invalid because the Secretary failed
to subject it to notice and comment rulemaking and because
the 90 percent figure is itself arbitrary and capricious. The
Miscellaneous Products Exemption likewise is invalid not only
because it was not subjected to notice and comment under
Section 553 of the APA, but also because it did not undergo a
separate notice and comment process for Buy America waivers
that is required by law. The court therefore grants
Plaintiffs' Motion for Summary Judgment and denies
Defendants' Motion for Summary Judgment. The court
further vacates the 90-Percent Threshold and the
Miscellaneous Products Exemption and remands these rules to
the Department of Transportation and the FHWA for further
proceedings consistent with this Memorandum Opinion.
The Surface Transportation Assistance Acts of 1978 and 1982
and Their Implementing Regulations
court begins with the history of the " Buy America"
requirement. Two pieces of legislation provide the starting
point: (1) the Surface Transportation Assistance Act of 1978
(the " 1978 Act" ), Pub. L. No. 95-599, 92 Stat.
2689 (1978) [hereinafter 1978 Act], and (2) the Surface
Transportation Act of 1982 (the " 1982 Act" ), Pub.
L. No. 97-424, 96 Stat. 2097 (1983) [hereinafter 1982 Act],
which amended the 1978 Act. Congress passed the 1978 Act, in
part, " to authorize appropriations for the construction
of certain highways." 1978 Act at Preamble. Section 401
of the 1978 Act is the genesis for the Buy America policy at
issue in this case. It read, in relevant part:
[T]he Secretary of Transportation shall not obligate any
funds authorized to be appropriated by this Act or by any Act
amended by this Act and administered by the Department of
Transportation, whose total cost exceeds $500,000 unless only
such unmanufactured articles, materials, and supplies as have
been mined or produced in the United States, and only such
manufactured articles, materials, and supplies as have been
manufactured in the United States substantially all from
articles, materials, and supplies mined, produced, or
manufactured, as the case may be, in the United States, will
be used in such project.
Id. § 401(a).
1978 Act permitted the Secretary of Transportation to exempt
from Buy America coverage products as to which the "
application [of Buy America] would be inconsistent with the
public interest." Id. § 401(b)(1). The
Secretary immediately invoked this public interest exemption,
narrowing the coverage of Buy America only to "
structural steel," see Buy America
Requirements, 43 Fed.Reg. 53717, 53717 (Nov. 8, 1978), which
the Secretary defined as " shapes, plates, H-piling, and
sheet piling," 23 C.F.R. § 635.410(b)(2) (1978).
See also 43 Fed.Reg. at 53717 (" [T]he [Federal
Highway] Administrator has determined that it would be in the
public interest to temporarily waive the provisions of
section 401 as it applies to products and materials, other
than structural steel, used in highway construction." ).
years later, Congress passed the 1982 Act, which superseded
or amended certain provisions in the 1978 Act. Section 165 of
the 1982 Act expressly superseded Section 401 of the 1978 Act
and provided that the " Secretary of Transportation
shall not obligate any funds [for federal highway
construction projects] unless steel, cement and
manufactured products used in such project are produced in
the United States." 1982 Act § 165(a). The
FHWA's implementing regulations, issued in 1983 after
notice and comment rulemaking (the " 1983
Regulations" ), significantly expanded the scope of Buy
America coverage to include " all steel products,"
not just " structural steel." As the 1983
Regulation's comments explained:
By denoting " steel" in Section 165 (1982 STAA),
Congress called attention to their intent to make the
coverage more encompassing. The legislative history is also
clear on this point. Congressional concern that Federal money
spent to improve highways should also aid U.S. industry is
apparent in the first sentence of Section 165 which requires
the Secretary of Transportation to ensure that funds
authorized for Federal-aid highway projects would only buy
U.S. made steel. The FHWA therefore, has expanded the Buy
America rule to include all steel products.
America Requirements, 48 Fed.Reg. 53099-02, 53102 (Nov. 25,
1983) (emphasis added). Various guidances issued by the FHWA
since the 1983 Regulations have confirmed the applicability
of Buy America to all steel components and subcomponents,
regardless of their form and the extent to which they
comprise a particular product. See Appendix A.
to the 1978 Act, the 1982 Act authorized the Secretary to
exempt products from the Buy America requirement where the
policy's " application would be inconsistent with
the public interest." 1982 Act § 165(b)(1). And, in
the 1983 Regulations, the Secretary again invoked this
authority, " find[ing] that it is in the public interest
to waive the application of Buy America to manufactured
products other than steel . . . manufactured
products." 48 Fed.Reg. at 53102. (emphasis added).
The FHWA's explanation for the " waiver" for
non-steel manufactured products focused on the difficulty of
tracing the materials that comprise such products. " The
FHWA agrees with the commenters who noted that it is very
difficult to identify the various materials and then trace
their origin. A manufactured product such as a traffic
controller which has many components is particularly
difficult to trace." Id. Notably, the 1983
Regulations did not include a definition of "
legislative updates brought the Buy America requirement to
its present form. In 1991, Congress passed the Intermodal
Surface Transportation Efficiency Act of 1991 (the "
ISTEA" ), Pub. L. 102-240, 105 Stat. 1914 (Dec. 18,
1991). The ISTEA extended the Buy America preference to
domestically produced iron, id. § 1048(a), and
the " coating of steel," id. §
1041(a). The ISTEA also included certain reporting
requirements to Congress, id. § 1048(e), and
added penalty provisions for false certifications,
id. § 1048(f). And in 2005, the Buy America law
was codified in its present form at 23 U.S.C. § 313,
Notwithstanding any other provision of law, the Secretary of
Transportation shall not obligate any funds authorized to be
appropriated to carry out the Surface Transportation
Assistance Act of 1982 (96 Stat. 2097) or this title and
administrated by the Department of Transportation, unless
steel, iron, and manufactured products used in such project
are produced in the United States.
23 U.S.C. § 313(a).
The 1997 Memorandum
December 22, 1997, the FHWA, through the Chief of its Highway
Operations Division, issued a memorandum to FHWA's Chief
Counsel, Edward V. A. Kussy with the subject line
" Buy America Policy Response" (the " 1997
Memorandum" ). Administrative R., ECF No. 36-1
[hereinafter AR], at 12-13. The 1997 Memorandum addressed the
waiver of Buy America for non-steel " manufactured
products," as set forth in the 1983 Regulations. First,
the 1997 Memorandum defined a manufactured product as "
any item that must undergo one or more manufacturing
processes before the item can be used in a highway
project" and noted that such products " may be
usable as a stand-alone product, or as a component within a
more complex assembly which would also be considered a
manufactured product." Id. at 12. It then
attempted to clarify how, in practice, the FHWA applies the
manufactured products waiver. " While FHWA does not
apply Buy America requirements to 'manufactured
products,' [it] do[es] apply the requirements to specific
components within those products." Id. at 13.
To provide an example, the 1997 Memorandum applied this
policy to a bridge bearing, a component that typically
provides a resting surface between bridge piers and the
[I]f a bridge bearing was considered only as a manufactured
product, it would be exempt from the Buy America
requirements. However, FHWA policy has been that the steel
components of a predominately steel product must be
of domestic manufacture unless the value of the components is
less than the minimal use threshold for the project.
Id. (emphasis added). In other words, pursuant to
the 1997 Memorandum, if a manufactured product "
predominately" consisted of steel, and the narrow,
minimal use exception was inapplicable, its steel components
were required to be produced in the United States. The 1997
Memorandum did not, however, define the word "
The 2012 Memorandum
the foregoing backdrop emerged the document at the center of
this dispute: the 2012 Memorandum issued by the FHWA's
Associate Administrator for Infrastructure, John Baxter, to
the leaders of the FHWA's Division and Field offices.
Like the 1997 Memorandum, the 2012 Memorandum sought to
" clarif[y] the [FHWA's] position regarding
application of Buy America requirements to manufactured
products." AR at 53.
2012 Memorandum is hardly a model of draftsmanship. It began
by observing that in the 1983 Regulations " the FHWA
found that it was in the public interest to waive application
of Buy America to manufactured products other than steel and
iron manufactured products." Id. It then noted
that the 1997 Memorandum " clarified that, while Buy
America does not apply to manufactured products, Buy America
does apply to components of 'predominately steel
2012 Memorandum went on to explain that, as a result of
various project reviews, questions had arisen "
regarding the scope of the application of the 1983 public
interest wavier for manufactured products." Id.
" For example," the Memorandum stated, " it
has been suggested that nuts, bolts, washers, and other
miscellaneous steel and iron parts used in common
off-the-shelf products such as toilets and the filaments in
light bulbs must be Buy America compliant." Id.
Concerned that such an interpretation is " inconsistent
with the previous 1983 waiver decision and . . . not
cost-effective to administer," the FHWA found it "
necessary to clarify the applicability of the waiver for
manufactured products." Id. The Memorandum then
stated that the " FHWA continues to support the Buy
America waiver for manufactured products in the 1983
[Regulations], as clarified by the 1997 [Memorandum]."
Id. at 54. That waiver, it noted, " was
intended to apply to all manufactured products except for
steel and iron manufactured products." Id.
the logic of the 2012 Memorandum becomes increasingly
difficult to follow. Although the preface of the Memorandum
identified concerns about the application of Buy America to
miscellaneous products, such as bolts and washers, the
Memorandum then refers to a different type of product--a
traffic controller, which the 1983 Regulations had cited as
an example of a complex article whose component parts are
difficult to trace. Id.; see also 48 Fed.Reg. at
53102. The 2012 Memorandum did not explain here, or at any
other point, how complex articles like traffic controllers
are related to miscellaneous products. It then observed that,
since the issuance of the 1983 Regulations, some states had
subjected " signal heads and other traffic control
equipment to Buy America," leading them to seek "
project specific ...