Fifth Circuit Finds Flaws in CPSC Rulemaking on Phthalate Limits Highlighting Another Rulemaking Misstep for the Agency

The Administrative Procedure Act (the “APA”) requires federal agencies to take specific steps when creating new rules and regulations. As a federal agency, the Consumer Product Safety Commission (the “CPSC”) must follow these steps—referred to as “notice and comment rulemaking”—as well as comply with its statutory specific requirements—in order to put into place new product safety regulations.

In early March, the U.S. Court of Appeals for the Fifth Circuit reviewed the CPSC’s enactment of a 2017 rule limiting phthalate content in children’s products. The Court held that the agency failed to appropriately follow the APA and provide the public with fair opportunity to respond to the final rule once the agency changed its scientific justification for the rule. It also held that the agency failed to conduct a standard cost-benefit analysis. While it left the phthalate limitation in place, the Court remanded the rule to the agency so the CPSC may provide another period for comment and to consider the justification for the final rule. This case serves as a reminder that the CPSC, a chronically underfunded agency, has struggled to properly execute APA and other statutory procedures to promulgate product safety rules. Perhaps additional funding, greater regulatory and legal depth, and more continuity at the Commission could help the agency properly enact product safety rules.

Without regard to the merits of phthalate regulation, the reasons why regulated industry should want the CPSC to be able to correctly perform regulatory rulemakings are at least twofold. First, if regulation or restriction on products makes sense, the most transparent and evenhanded approach is through enactment of mandatory standards, not through the administratively easier “backdoor” regulatory approach of enforcement and publicity, which is rife with the possibility of arbitrary and capricious application in a non-uniform manner.

Second, every time the CPSC fails to properly promulgate a regulation and it is overturned by a court, certain individuals at the Commission, Congress, and advocacy groups, complain that the CPSC statutes are just too hard to administer with respect to rulemakings. But, that’s simply not true and the errors found here are garden-variety APA errors that can, and should, be corrected in the future.

Lawsuit Background

Phthalates are a class of organic compounds primarily used to soften and add flexibility to plastics. Some phthalates are alleged to hinder normal development of children (i.e., antiandrogenic effects), which therefore could present a hazard for use in children’s products. With the enactment of the Consumer Product Safety Improvement Act (the “CPSIA”) in 2008, Congress enacted an interim ban on one such phthalate, DINP, for “mouthable” children’s toys and products and directed the CSPC to promulgate a final rule on phthalates. Congress also directed the CPSC to appoint a Chronic Hazard Advisory Panel (a “CHAP”) to study the effect of phthalates used in children’s toys and products.

Based on the CHAP’s recommendation, the CPSC issued a proposed rule (1) expanding CPSIA’s interim prohibition on DINP to a permanent one and extending the ban to all children’s toys/child care articles as opposed to only such products that could be “mouthed”; and (2) banning DIBP, DPENP, DHEXP, and DCHP at levels greater than 0.1 percent in children’s toys/child care articles.

Following the publication of the proposed rule, the Commission received additional data from the Department of Health and Human Services’ National Health and Nutrition Examination Survey. This new data set differed from the data relied upon by the CHAP and suggested a lower level of risk than that relied upon by the agency in promulgating its proposed rule. Nevertheless, CPSC turned its proposed rule into a nearly identical rule, purportedly based upon the new data. So, different data, but same conclusion and same rule. The Final Rule was published on October 27, 2017, and went into effect in April 25, 2018.¹

A number of business associations, including the Texas Association of Manufacturers and the National Association of Manufacturers, filed suit alleging that the CPSC failed to provide adequate notice when it changed its justification for the Final Rule, using the new data set as its primary justification.

Fifth Circuit’s Holding

A three-judge panel of the Fifth Circuit Court of Appeals issued a unanimous opinion holding that the CPSC failed to provide adequate notice that it was relying on new data. Interestingly, the CPSC did in fact provide some notice that it was relying upon new data and asked for comments on the reliance. However, the Fifth Circuit asserted that the agency did not do enough to urge the public to comment specifically on its reliance upon “individual spot samples” and only one commenter questioned the agency on this use of data. The Court held that “while the Commission did provide some opportunity for comment on its reliance on spot samples, it did not make clear it was inviting comments on the use of spot samples as a new justification for why the Final Rule is necessary to protect the health of children.”²

Ultimately, the Court held that the change in justification demonstrated that “the Final Rule is not a logical outgrowth of the Proposed Rule. As one of the commissioners pointed out, that change in methodology—whether right or wrong—was not reasonably foreseeable based on the Proposed Rule.”³ The CPSC therefore violated the APA’s notice-and-comment rulemaking procedures.

The CPSC did not only err in failing to provide adequate notice in promulgating a rule via notice-and-comment rulemaking. Plaintiffs also argued that the CPSC failed to assess whether its Final Rule was “reasonably necessary” to prevent or reduce an unreasonable risk of injury as required by precedent interpreting 15 U.S.C. § 2057. The Court held that to determine reasonable necessity, the CPSC would have had to conduct a cost-benefit analysis, which it failed to do. Moreover, the agency failed to assess the costs of implementing the permanent ban on DINP in comparison to the interim ban which was already put in place by CPSIA.

Implications for the Agency

While the CPSC  erred in two ways in promulgating its final phthalates rule, the Court allowed the rule to stay in place. The Court noted that vacating a rule is warranted in only rare circumstances, and here, there is a “serious possibility” that the CPSC can remedy its failures by providing an additional opportunity for industry participants to comment on the new justification for the final rule. Moreover, the agency must perform a cost-benefit analysis of continuing Congress’s interim prohibition on DINP to determine whether the rule is “reasonably necessary” to protect the public from harm.

Substantively, it’s unclear this case does much for manufacturers utilizing phthalates in plastics production. The rule remains the same in the interim and the CPSC may well be able to correct its errors in time. However, the case illustrates that the under-resourced agency has once again suffered an unforced error in trying to execute APA procedure to promulgate product safety rules. For example, in 2016, the agency’s safety standard for magnet sets was vacated by the Tenth Circuit Court of Appeals, and in that time, the CPSC has failed to promulgate a soundly based rule.

In our opinion, the CPSA doesn’t need to be changed, nor does the CPSC require a streamlined or “easier” procedure to enact product safety rules. The “logical outgrowth” principle applies to all federal rulemaking. The specific cost-benefit analysis required is part of the CPSC statutes, but if CPSC was an executive branch agency, rather than an independent regulatory agency, it would need to engage in the very same analysis it is required to undertake currently. The task before the agency is not impossible or unreasonable, just open to error, and we hope that the agency looks hard at preventing these unforced errors in the future.

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