## Facts

- EPA regulated lead content in gasoline under Clean Air Act § 211(c), adopting in 1985 a descending federal lead-content standard that became progressively stricter through early 1986.
- To facilitate compliance, EPA created a lead-credit “banking” program allowing producers to bank credits when they reduced lead content below the applicable federal standard and to use those credits later.
- EPA included a “state standard limitation” barring producers from banking credits for reductions attributable solely to compliance with a state standard more stringent than the federal standard.
- California was the only state with a separate, stricter lead standard applicable to gasoline sold in California, regardless of where produced.
- California-based refiners Union Oil Company of California and Beacon Oil Company challenged the state standard limitation as procedurally defective, arbitrary and capricious, and unconstitutional (due process, equal protection, and Tenth Amendment).
- During the litigation, petitioners sought additional EPA documents outside the public rulemaking docket, including internal staff analysis regarding impacts on California refiners.

## Issues

1. Whether EPA’s notice-and-comment process and administrative record for the state standard limitation complied with Clean Air Act and APA procedural requirements.
2. Whether the state standard limitation was arbitrary and capricious under the Clean Air Act and the APA because it disadvantaged California refiners and treated them differently from others.
3. Whether the limitation violated due process or equal protection principles as applied to economic regulation.
4. Whether the limitation impermissibly interfered with state authority in violation of the Tenth Amendment.

## Decision

- The court denied the petition for review and upheld EPA’s lead-banking regulation, including the state standard limitation.
- The court found procedural deficiencies in the rulemaking process but held they did not warrant vacatur because petitioners had a meaningful opportunity to comment and the asserted omissions did not prejudice the outcome.
- The court held the limitation was reasonable and not arbitrary and capricious because it furthered the banking program’s purpose of rewarding voluntary reductions rather than reductions compelled by state law.
- The court rejected due process and equal protection claims under rational-basis review, concluding EPA had legitimate objectives and a rational means for achieving them.
- The court rejected the Tenth Amendment claim because the rule regulated private conduct under federal statutory authority and did not compel state action.

## Legal Principles

- Under APA review, procedural defects in notice-and-comment rulemaking do not require vacatur absent prejudice; courts may treat certain procedural errors as harmless when the record shows meaningful opportunity to comment and no material impairment of the process.
- Agency action is not arbitrary and capricious when the agency articulates a rational connection between the rule and the program’s purpose and acts within delegated statutory discretion.
- For economic regulation, disparate impacts generally are evaluated under rational-basis review; a regulation is constitutional if it serves a legitimate governmental purpose and the classification is rationally related to that purpose.
- A federal regulation does not violate the Tenth Amendment where it operates on private parties pursuant to enumerated federal power and does not commandeer state governments to enact, administer, or enforce a federal program.

## Conclusion

The D.C. Circuit sustained EPA’s lead-credit banking program and its state standard limitation, holding that any procedural missteps were not reversible error and that the limitation was a reasonable, lawful method to reserve federal banking incentives for voluntary lead reductions rather than reductions compelled solely by stricter state standards.


Union Oil Co. of Cal. v. EPA, 821 F.2d 678 (D.C. Cir. 1987)