The Crittenden Automotive Library

Civil Penalties

Civil Penalties

Mark R. Rosekind
National Highway Traffic Safety Administration
28 December 2016

[Federal Register Volume 81, Number 249 (Wednesday, December 28, 2016)]
[Rules and Regulations]
[Pages 95489-95492]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31136]

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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Part 578

[Docket No. NHTSA-2016-0136]
RIN 2127-AL82

Civil Penalties

AGENCY: National Highway Traffic Safety Administration (NHTSA),
Department of Transportation (DOT).

ACTION: Final rule; response to petition for reconsideration; response
to petition for rulemaking.

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SUMMARY: On July 5, 2016, NHTSA published an interim final rule
updating the maximum civil penalty amounts for violations of statutes
and regulations administered by NHTSA, pursuant to the Federal Civil
Penalties Inflation Adjustment Act Improvements Act of 2015. This
decision responds to a petition for partial reconsideration of that
interim final rule. After carefully considering the issues raised, the
Agency grants some aspects of the petition, and denies other aspects.
This decision amends the relevant regulatory text accordingly. This
decision also responds to a petition for rulemaking on a similar topic.

DATES: Effective date: This rule is effective January 27, 2017.

FOR FURTHER INFORMATION CONTACT: Ms. Rebecca Yoon, Office of the Chief
Counsel, NHTSA, telephone (202) 366-2992, facsimile (202) 366-3820,
1200 New Jersey Avenue SE., Washington, DC 20590.

SUPPLEMENTARY INFORMATION:

I. Background on CAFE Penalties and Interim Final Rule

The National Highway Traffic Safety Administration (NHTSA)
administers Corporate Average Fuel Economy (CAFE) standards under 49
U.S.C. 32901 et seq. Vehicle manufacturers that produce passenger cars
and light trucks for sale in the United States are subject to these
standards,\1\ and are subject to civil penalties for failure to meet
the standards.\2\ Manufacturers generally meet the standards by
applying technology to their vehicles to improve their fleet-wide fuel
economy, but may also apply credits earned from over-compliance with
standards in another year or purchased from another manufacturer. If a
manufacturer does not have credits to apply, and does not apply
sufficient fuel economy-improving technologies to their vehicles to
meet their fleet-wide standards, then that manufacturer is liable for
civil penalties.\3\
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\1\ 49 U.S.C. 32911(b).
\2\ 49 U.S.C. 32912(b).
\3\ Civil penalties are remitted to the U.S. Treasury.
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Congress has prescribed the formula for calculating a civil penalty
for violation of a CAFE standard. That formula multiplies the penalty
rate times the number of tenths-of-a-mile-per-gallon by which a non-
compliant fleet falls short of an applicable CAFE standard, times the
number of vehicles in that non-compliant fleet.\4\ For many years, the
penalty rate has been $5.50 per tenth-of-a-mile-per-gallon. As an
illustration, assume that Manufacturer A produced 1,000,000 light
trucks in model year 2010. Assume further that A has a light truck
standard of 20 mpg for MY 2010, and an achieved light truck average
fuel economy level of 19.7 mpg in that model year. If A has no credits
to apply, then A's assessed civil penalty under this historical penalty
rate would be:
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\4\ 49 U.S.C. 32912(b).

$5.50 (penalty rate) x 3 (tenths of an mpg) x 1,000,000 (vehicles in
Manufacturer A's light truck fleet) = $16,500,000 due for A's light
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truck fleet for MY 2010.

To date, few manufacturers have actually paid civil penalties, and the
amounts of CAFE penalties paid generally have been relatively low.
Additionally, since the introduction of credit trading and transfers
for MY 2011 and after, many manufacturers have taken advantage of those
flexibilities rather than paying civil penalties for non-compliance.
The Federal Civil Penalties Inflation Adjustment Act Improvements
Act (November 2, 2015) (the ``Act'') prescribed an inflation adjustment
for many civil monetary penalties, including CAFE's civil penalty rate.
In that Act, Congress generally required Federal agencies that
administer civil monetary penalties to make an initial ``catch-up''
adjustment for inflation through an interim final rule by July 1, 2016,
and then to make subsequent annual adjustments for inflation (see Pub.
L. 114-74, Sec. 701). NHTSA developed an interim final rule (IFR)
implementing the Agency's responsibilities under that Act, and that IFR
published in the Federal Register on July 5, 2016. The NHTSA IFR
included adjustments for all civil monetary penalties administered by
the Agency, including those prescribed by the CAFE program. In
accordance with the Act and OMB guidance, the updated penalty rate
increased from $5.50 per tenth of a mile per gallon (mpg) to $14 per
tenth of an mpg.\5\ NHTSA stated in implementation guidance that it
issued following the IFR that the Agency intended to apply the $14 rate
to any penalties assessed on and after August 4, 2016, beginning with
penalties applicable to violations for MY 2015, and also applying to
any violations from prior model years that resulted from recalculation
of a manufacturer's previous CAFE levels.\6\
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\5\ NHTSA's explanation of its process, including reliance on
OMB guidance for calculating the initial adjustment required by the
Act, is set forth in the interim final rule at 81 FR 43524-26 (Jul.
5, 2016). The interim final rule also discusses the ``rounding
rule'' under the prior version of the Federal Civil Penalties
Inflation Adjustment Act, which prevented NHTSA from raising the
$5.50 rate after 1997.
\6\ Memorandum, ``Implementation of the Federal Civil Penalties
Inflation Adjustment Act Improvement Act of 2015 for the Corporate
Average Fuel Economy (CAFE) Program,'' July 18, 2016.
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II. Industry Petition for Reconsideration

The Auto Alliance and Global Automakers jointly petitioned NHTSA
for reconsideration of the interim final rule with regard to the
inflation adjustment for CAFE non-compliance penalties (hereafter, the
Alliance and Global petition will be referred to as the ``Industry
Petition'') on August 1, 2016. The Industry Petition asked that NHTSA
not apply the penalty increase to non-compliances associated with
``model years that have already been completed or for which a company's
compliance plan has already been set.'' Specifically, the Industry
Petition stated that:

Our most significant concern with the IFR is that it would apply
retroactively to the 2014 and 2015 Model Years (which have been
completed for all manufacturers but for which the compliance files
are not all closed), to the 2016 Model Year (which is complete for
many manufacturers) and to the 2017 and 2018 Model Years (for which
manufacturers have already set compliance plans based on guidance
from NHTSA, including the [historical penalty amounts of $5.50 per
tenth of an mpg]). Applying the increased civil penalties in this
manner is profoundly unfair to manufacturers, does not improve the
effectiveness of this penalty, and does nothing to further the
policies underlying the CAFE statute.

Industry Petition at 3.
In the alternative, the Industry Petition requested that if NHTSA
decided to apply the penalty increase to MYs 2014-2018, the Agency
should recalculate the adjusted penalty rate

[[Page 95490]]

using 2007 as the ``base year'' for calculating the inflation
adjustment. As another alternative, the Industry Petition sought a
finding that immediately increasing the penalty to $14 would cause a
``negative economic impact,'' thereby requiring a smaller initial
penalty increase. See Public Law 114-74, Sec. 701(c) (providing for an
exception to the otherwise-applicable penalty increase, if the Agency
finds through a rulemaking proceeding that the increase would cause a
``negative economic impact,'' a term that the statute does not
define).\7\
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\7\ Because the Agency is granting the Industry Petition's
request to apply inflation-adjusted penalties only to MY 2019 and
after, the Agency need not address the Industry Petition's
alternative requests.
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III. Petition for Rulemaking To Raise Civil Penalty Rate

The Center for Biological Diversity (CBD) petitioned NHTSA on
October 1, 2015, just over a month prior to passage of the Act, to
conduct a rulemaking to raise the civil penalty rate for CAFE standard
violations under NHTSA's then-existing statutory authority. The CBD
petition stated correctly that NHTSA had not adjusted the $5.50 civil
penalty rate for inflation since 1997, and requested that the Agency
follow the procedure laid out at 49 U.S.C. 32912(c) to undertake a
rulemaking to raise the amount to the maximum then allowed by Congress,
$10 per tenth-of-an-mpg. A month later, Congress changed the statutory
landscape by enacting the Federal Civil Penalties Inflation Adjustment
Act Improvements Act of 2015.

IV. NHTSA Response to Petitions

Having carefully considered the issues raised by the petitioners,
NHTSA will grant the Industry Petition in part and deny it in part.
Beginning with model year 2019, NHTSA will apply the full penalty
prescribed by the Federal Civil Penalties Inflation Adjustment
Improvements Act of 2015. NHTSA is required by the Act to continue
adjusting the civil penalty for inflation each year, so the penalty
rate applicable to MY 2019 and after fleets will be $14 per tenth-of-
an-mpg, plus any adjustment(s) for inflation that occur between now and
a violation's assessment. The Agency concludes that this decision also
effectively addresses the issue raised by the CBD Petition. The
discussion below presents the Agency's analysis and conclusion.

A. Model Years 2014-2016

NHTSA agrees with the Industry Petitioners that applying the $14
civil penalty rate to violations of CAFE standards in model years prior
to the enactment of the Act would not result in additional fuel
savings, and thus would seem to impose retroactive punishment without
accomplishing Congress' specific intent in establishing the civil
penalty provision of the Energy Policy and Conservation Act (``EPCA'').
Model years typically begin prior to their respective calendar year. By
November 2, 2015 (the date of enactment of the civil penalties
adjustment Act), nearly all manufacturers subject to the CAFE standards
had completed both model years 2014 and 2015, and no further vehicles
in those model years were being produced in significant numbers. This
argument is even stronger considering that all manufacturers would have
completed these model years prior to July 5, 2016, the date of the IFR.
If all the vehicles for a model year have already been produced, then
there is no way for their manufacturers to raise the fuel economy level
of those vehicles in order to avoid higher penalty rates for non-
compliance.
In the specific context of EPCA as amended, the purpose of civil
penalties for non-compliance is to encourage manufacturers to comply
with the CAFE standards. See 49 CFR 578.2 (section addressing penalties
states that a ``purpose of this part is to effectuate the remedial
impact of civil penalties and to foster compliance with the law''); see
generally, 49 U.S.C. 32911-32912; United States v. General Motors, 385
F.Supp. 598, 604 (D.D.C. 1974), vacated on other grounds, 527 F.2d 853
(D.C. Cir. 1975) (``The policy of the Act with regard to civil
penalties is clearly to discourage noncompliance''). Assuming that
higher civil penalty rates are intended, in the particular context of
CAFE, to provide greater incentives for manufacturers to comply with
applicable standards, then raising penalty rates for model years
already completed and thus unchangeable would be not only
retroactive,\8\ but incapable of serving the purpose of causing greater
compliance with CAFE standards. Based on the governing statutory
framework and the specific CAFE regulatory scheme, NHTSA believes that
Congress would not have intended retroactive application of an
inflation adjustment to overcome this core substantive purpose and
intent of EPCA. This analysis compels the conclusion that applying an
increased penalty rate to MYs 2014 and 2015 would not be appropriate,
nor would applying it to MY 2016, which was underway by November 2,
2015 and over halfway complete by July 5, 2016.\9\
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\8\ Retroactivity is not favored in the law. The Supreme Court
has stated that ``congressional enactments . . . will not be
construed to have retroactive effect unless their language requires
this result.'' Landgraf v. USI Film Products, 511 U.S. 244, 280
(1994), citing Bowen v. Georgetown University Hospital, 488 U.S.
204, 208 (1988). NHTSA believes that in the specific context of the
CAFE program and the statutes that govern it, Congress could not
have intended to impose higher civil penalty rates for time periods
when they would not incentivize increased fuel economy.
\9\ The decision not to apply the increased penalties
retroactively is similar to the approach taken by various other
federal agencies in implementing the Federal Civil Penalties
Inflation Adjustment Act Improvements Act of 2015. See, e.g.,
Department of Justice, Interim final rule with request for comments:
Civil Monetary Penalties Inflation Adjustment, 81 FR 42491 (June 30,
2016) (applying increased penalties only to violations after
November 2, 2015, the date of the Act's enactment); Federal Aviation
Administration, Interim Final Rule: Revisions to Civil Penalty
Inflation Adjustment Tables, 81 FR 43463 (July 5, 2016) (applying
increased penalties only to violations after August 1, 2016).
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B. Model Years 2017 and 2018

The Industry Petition asserts that manufacturers have set their
product and compliance plans for MY 2017 and 2018 based on the CAFE
penalty provisions in place prior to July 2016, and that it is too late
at this juncture to make significant changes to those plans and avoid
non-compliances (for the manufacturers already intending not to
comply). The Agency determined above that it is not appropriate to
apply an increased penalty rate to CAFE non-compliance in past model
years, i.e., MY 2016 and before, which could not be changed in response
to a higher penalty rate. The next question presented by the Industry
Petition is how to address future model years' vehicles whose fuel
economy levels cannot be changed at this juncture.
For immediate future model years (i.e., 2017 and 2018), the
theoretical possibility exists that manufacturers could respond to a
higher penalty rate by increasing their fleet fuel economy and thus
achieving CAFE compliance or mitigating their non-compliance. However,
because of industry design, development, and production cycles, vehicle
designs (including drivetrains, which are where many fuel economy
improvements are made) are often fixed years in advance, making
adjustments to fleet fuel economy difficult without a lead time of
multiple years.
Here, the Industry Petitioners assert that their plans for what
technology to put on which MYs 2017 and 2018 vehicles are, at the point
the IFR was issued, fixed and inalterable. NHTSA takes manufacturers'
product cycles into account when NHTSA sets fuel economy standards. For
example,

[[Page 95491]]

because NHTSA recognizes that manufacturers' product and compliance
plans are difficult to alter significantly for years ahead of a given
model year,\10\ the Agency includes product cadence in its assessment
of CAFE standards, by limiting application of technology in its
analytical model to years in which vehicles are refreshed or
redesigned. NHTSA believes that this approach facilitates continued
fuel economy improvements over the longer term by accounting for the
fact that manufacturers will seek to make improvements when and where
they are most cost-effective.
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\10\ One of the Industry Petitioners, the Alliance, submitted
supplemental materials describing the activities and events that
make up product cycles, which support this point. See Docket No.
NHTSA-2016-0136.
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In an analogous context, EPCA provides that when DOT amends a fuel
economy standard to make it more stringent, that new standard must be
promulgated ``at least 18 months before the beginning of the model year
to which the amendment applies.'' 49 U.S.C. 32902(a)(2). The 18 months'
notice requirement for increases in fuel economy standards represents a
congressional acknowledgement of the importance of advance notice to
vehicle manufacturers to allow them the lead time necessary to adjust
their product plans, designs, and compliance plans to address changes
in fuel economy standards. Similarly here, affording manufacturers lead
time to adjust their products and compliance plans helps them to
account for such an increase in the civil penalty amount. In this
unique case, the 18-month lead time for increases in the stringency of
fuel economy standards provides a reasonable proxy for appropriate
advance notice of the application of substantially increased--here
nearly tripled--civil penalties.
Given that NHTSA issued the IFR in July 2016, 18 months from that
date would be January 2018, which would encompass MY 2017 for most
manufacturers and models and part of MY 2018. Based on the Industry
Petition, comments, and agency expertise, NHTSA believes that, in this
instance, applying the adjusted penalties only for MY 2019 and after
provides a reasonable amount of lead time for manufacturers to adjust
their plans and products to take into account the substantial change in
penalty level.
For future model years for which the vehicles to be produced and
their technologies are essentially fixed (i.e., MYs 2017-2018), it is
conceivable that some manufacturers might be able to change production
volumes of certain lower- or higher-fuel-economy models, which could
help them to reduce or avoid CAFE non-compliance penalties. However, in
this particular instance, compelling such a result through the
immediate application of higher penalty rates to product design
decisions that have already been made and cannot be changed would be
contrary to a fundamental congressional purpose of the CAFE program.
The Energy Independence and Security Act (EISA) amendments of 2007
required that fuel economy standards be attribute-based, demonstrating
congressional intent that the CAFE program be responsive to consumer
demand. See 49 U.S.C. 32902(b)(3). Applying higher civil penalty rates
in a way that would force manufacturers to disregard consumer demand
(e.g., by restricting the availability of vehicles that consumers want)
would be inconsistent with that fundamental statutory command.
Providing some lead time, as here, mitigates that concern.
In order to reconcile competing statutory objectives in the unique
context of multi-year vehicle product cycles, NHTSA will grant the
Industry Petition insofar as it seeks to apply the penalty increase
only for model years 2019 and after. For CAFE standard non-compliances
that occur(ed) for model years 2014-2018, NHTSA intends to assess civil
penalties at the rate of $5.50 per tenth of an mpg. Beginning with
model year 2019, NHTSA will apply the full penalty prescribed by the
Federal Civil Penalties Inflation Adjustment Improvements Act of 2015.
NHTSA is required by the Act to continue adjusting the civil penalty
for inflation each year, so the penalty rate applicable to MY-2019-and-
after fleets will be $14 per tenth-of-an-mpg, plus any adjustment(s)
for inflation that occur between now and then. See Public Law 114-74,
Sec. 701(b)(2).
NHTSA believes this approach appropriately harmonizes the two
congressional directives of adjusting civil penalties to account for
inflation and maintaining attribute-based, consumer-demand-focused
standards, applied in the context of the presumption against
retroactive application of statutes. See, e.g., Bowen v. Georgetown
Univ. Hosp., 488 U.S. 204, 208. This decision increases civil penalties
starting with the model year that manufacturers, in this particular
instance, are reasonably able to design and produce vehicles in
response to the increased penalties. See Industry Petition at 4-6
(seeking application of the adjusted civil penalties only to MY 2019
and after).
In summary, NHTSA partially grants the Industry Petition for
Reconsideration insofar as it seeks implementation of the civil
penalties adjustment only to MY 2019 and after, and denies the Industry
Petition in all other respects.
This action also effectively responds to the petition for
rulemaking from CBD to increase the civil penalty rate as permitted by
EPCA/EISA. The civil penalty rate beginning in MY 2019 will be
substantially higher than the CBD petition requested, and NHTSA
believes that the increased penalty will accomplish CBD's goal of
encouraging manufacturers to apply more fuel-saving technologies to
their vehicles in those future model years. To the extent that the CBD
Petition requests an earlier penalty rate increase, it is denied for
the reasons set forth in this decision.

V. Regulatory Notices and Analyses

A. Executive Order 12866, Executive Order 13563, and DOT Regulatory
Policies and Procedures

NHTSA has considered the impact of this rulemaking action under
Executive Order 12866, Executive Order 13563, and the Department of
Transportation's regulatory policies and procedures. This rulemaking
document was not reviewed under Executive Order 12866 or Executive
Order 13563, and has been determined not to be ``significant'' under
the Department of Transportation's regulatory policies and procedures
and the policies of the Office of Management and Budget.

B. Regulatory Flexibility Act

NHTSA has also considered the impacts of this rule under the
Regulatory Flexibility Act. I certify that this rule will not have a
significant impact on a substantial number of small entities. The
following provides the factual basis for this certification under 5
U.S.C. 605(b). The amendments only affect manufacturers of motor
vehicles. Low-volume manufacturers can petition NHTSA for an alternate
CAFE standard under 49 CFR part 525, which lessens the impacts of this
rulemaking on small businesses by allowing them to avoid liability for
potential penalties under 49 CFR 578.6(h)(2). Small organizations and
governmental jurisdictions will not be significantly affected as the
price of motor vehicles and equipment ought not change as the result of
this rule.

C. Executive Order 13132 (Federalism)

Executive Order 13132 requires NHTSA to develop an accountable
process to ensure ``meaningful and timely input by State and local
officials

[[Page 95492]]

in the development of regulatory policies that have federalism
implications.'' ``Policies that have federalism implications'' is
defined in the Executive Order to include regulations that have
``substantial direct effects on the States, on the relationship between
the national government and the States, or on the distribution of power
and responsibilities among the various levels of government.'' Under
Executive Order 13132, the agency may not issue a regulation with
Federalism implications, that imposes substantial direct compliance
costs, and that is not required by statute, unless the Federal
government provides the funds necessary to pay the direct compliance
costs incurred by State and local governments, or the agency consults
with State and local governments early in the process of developing the
proposed regulation.
This rule will not have substantial direct effects on the States,
on the relationship between the national government and the States, or
on the distribution of power and responsibilities among the various
levels of government, as specified in Executive Order 13132. The reason
is that this rule applies to motor vehicle manufacturers. Thus, the
requirements of Section 6 of the Executive Order do not apply.

D. Unfunded Mandates Reform Act of 1995 (UMRA)

The Unfunded Mandates Reform Act of 1995, Public Law 104-4,
requires agencies to prepare a written assessment of the cost,
benefits, and other effects of proposed or final rules that include a
Federal mandate likely to result in the expenditure by State, local, or
tribal governments, in the aggregate, or by the private sector, of more
than $100 million annually. Because NHTSA does not believe that this
rule will necessarily have a $100 million effect, no Unfunded Mandates
assessment will be prepared.

E. Executive Order 12778 (Civil Justice Reform)

This rule does not have a retroactive or preemptive effect.
Judicial review of this rule may be obtained pursuant to 5 U.S.C. 702.
That section does not require that a petition for reconsideration be
filed prior to seeking judicial review.

F. Paperwork Reduction Act

In accordance with the Paperwork Reduction Act of 1980, we state
that there are no requirements for information collection associated
with this rulemaking action.

G. Privacy Act

Please note that anyone is able to search the electronic form of
all comments received into any of our dockets by the name of the
individual submitting the comment (or signing the comment, if submitted
on behalf of an association, business, labor union, etc.). You may
review DOT's complete Privacy Act statement in the Federal Register
published on April 11, 2000 (65 FR 19477-78) or you may visit https://www.transportation.gov/privacy.

List of Subjects in 49 CFR Part 578

Fuel economy, Motor vehicles, Penalties.

In consideration of the foregoing, 49 CFR part 578 is amended as
set forth below.

PART 578--CIVIL AND CRIMINAL PENALTIES

0
1. The authority citation for 49 CFR part 578 is revised to read as
follows:

Authority: Pub. L. 101-410, Pub. L. 104-134, Pub. L. 109-59,
Pub. L. 114-74, Pub L. 114-94, 49 U.S.C. 32902 and 32912; delegation
of authority at 49 CFR 1.81, 1.95.

0
2. Section 578.6 is amended by revising paragraph (h) to read as
follows:

Sec. 578.6 Civil penalties for violations of specified provisions of
Title 49 of the United States Code.

* * * * *
(h) Automobile fuel economy. (1) A person that violates 49 U.S.C.
32911(a) is liable to the United States Government for a civil penalty
of not more than $40,000 for each violation. A separate violation
occurs for each day the violation continues.
(2) Except as provided in 49 U.S.C. 32912(c), beginning with model
year 2019, a manufacturer that violates a standard prescribed for a
model year under 49 U.S.C. 32902 is liable to the United States
Government for a civil penalty of $14, plus any adjustments for
inflation that occurred or may occur (for model years before model year
2019, the civil penalty is $5.50), multiplied by each .1 of a mile a
gallon by which the applicable average fuel economy standard under that
section exceeds the average fuel economy--
(i) Calculated under 49 U.S.C. 32904(a)(1)(A) or (B) for
automobiles to which the standard applies produced by the manufacturer
during the model year;
(ii) Multiplied by the number of those automobiles; and
(iii) Reduced by the credits available to the manufacturer under 49
U.S.C. 32903 for the model year.
* * * * *

Issued on: December 21, 2016.
Mark R. Rosekind,
Administrator.
[FR Doc. 2016-31136 Filed 12-27-16; 8:45 am]
BILLING CODE 4910-59-P