BRUCE BABBITT, Secretary of
the U.S. Department of the
Interior, et al.,

Defendants.

Intervenor, Chief Counsel for Advocacy of the United States Small Business Administration ("SBA"), hereby submits his Amicus Curiae Memorandum of Points and Authorities In Support of Plaintiff's Cross Motion for Summary Judgment and in Opposition to the Defendants' Motion for Summary Judgment.

Defendants have failed to comply with various procedural and substantive requirements of the Regulatory Flexibility Act ("RFA"), 5 U.S.C. §§ 601-12 (as amended) in promulgating the surface mining regulation at issue in this case. Specifically, Defendants failed to comply with statutory requirements in employing a definition of small business mining company; employed varying (and contradictory) definitions of "small business" throughout the rulemaking; lacked a rational basis for the definitions employed; and lacked a rational foundation for their conclusion that the regulation would not have a significant economic impact on a substantial number of small businesses. In addition to these arbitrary and capricious actions, Defendants have failed to comply with the Administrative Procedures Act by promulgating the regulation without proper notice and comment.

I. HISTORY OF THE RFA

A. Rationale for Enactment of the RFA.

Prior to the passage of the RFA in 1980, Congress held hearings to determine the effects of regulations on small businesses. Through the hearings, Congress learned that uniform federal regulations produced a disproportionate adverse economic hardship on small entities and that regulations that were designed for large entities were being applied to small entities even though the problems were not created by small entities. See Pub. L. No. 96-354, Sec. 2(a), 94 Stat. 1164 (findings and purposes) (1980).

The failure of government agencies to recognize differences in the scale and resources of regulated entities adversely affected competition in the marketplace, discouraged innovation, restricted improvements in productivity, and discouraged entrepreneurship. Congress also found that treating all entities equally led to inefficient use of regulatory agency resources, enforcement problems, and actions that were inconsistent with legislative intent. Id.

Congress determined that, in the rulemaking process, agencies should be required to solicit comments from small entities; examine the impact of the proposed and existing rules on small entities; examine regulatory alternatives that achieve the same purposes while minimizing small business impacts; and review the continued need for existing rules. Id. To address the aforementioned concerns, Congress passed Pub. L. No. 96-354, the RFA, which required administrative agencies to consider the potential impact of federal regulations on small entities.

B. Definition of Small Business Under the RFA.

The RFA states that:

the term "small business", has the same meaning as the term 'small business concern' under section 3 of the Small Business Act, unless an agency, after consultation with the Office of Advocacy of the Small Business Administration and after an opportunity for public comment, establishes one or more definitions of such term which are appropriate to the activities of the agency and publishes such definition(s) in the Federal Register. 5 USC §601(3).

By law, therefore, agencies must consult with the SBA's Office of Advocacy and submit for public comment any proposed size standard that deviates from SBA's size standard.

C. RFA Requirements.

The RFA requires agencies to prepare and publish a regulatory flexibility analysis when proposing a regulation and a final analysis when issuing a final rule for each rule that will have a significant economic impact on a substantial number of small entities. The RFA exempts an agency from these requirements if the agency "certifies that the rule will not, if promulgated, have a significant economic impact on a substantial number of small entities." 5 U.S.C. § 605(b). This, however, is the exception, not the rule.

D. Enactment of the Small Business Regulatory Enforcement Fairness Act.

Many agencies, however, simply ignored the RFA by relying on the certification of "no significant economic impact" in order to avoid a full regulatory flexibility analysis. Since agency compliance with the RFA was not judicially reviewable, agencies could not be held accountable for their noncompliance with the statute.

In March 1996, Congress, recognizing the widespread agency indifference, amended the RFA by enacting the Small Business Regulatory Enforcement Fairness Act ("SBREFA"), Pub. L. No. 104-121, tit. II, 110 Stat. 857, 864-68 (1996). On the day the legislation passed the Senate, one of the main authors of the original legislation and co-sponsor of the amendments, Senator Dale Bumpers, stated:

.Agencies do not like to jump through hoops. So what do they do? Almost without exception they would simply say these regulations are not unduly burdensome on the small business community; therefore, they did not have to do anything more to accommodate the burden of that regulation on small business.

142 Cong. Rec. S2154-55 (1996). The 1996 Amendments reshaped the requirements of the RFA relating to the content of a Final Regulatory Flexibility Analysis (FRFA) and a certification.

A comparison of the amended version of 5 U.S.C. § 605(b) with its statutory predecessor demonstrates the more rigorous requirements under SBREFA for certifying that a rule will not have a significant economic impact. The original text read:

"If the head of the agency makes a certification . . ., the agency shall publish such certification in the Federal Register . . . along with a succinct statement explaining the reasons for such certification . . ." (emphasis added)

The new language reads:

"If the head of the agency makes a certification . . . the agency shall publish such certification . . . along with a statement providing the factual basis for such certification."

SBREFA deleted the word "succinct" and added the words "factual basis", clearly signaling that Congress intended agencies to provide a more substantial justification for certifying, if an agency wanted to avoid preparing a full regulatory flexibility analysis. Furthermore, legislative history indicates that Congress believed that the factual basis requirement would provide a record upon which a court may review an agency's actions. See, 142 Cong. Rec. E574, April 19, 1996.

SBREFA also provided for judicial review of agencies' final decisions under the RFA. See id. §§ 241, 242, 110 Stat. at 864-66 (codified as amended at 5 U.S.C. §§ 604(a), 611(a)(1) (Supp. 1997)) ("For any rule subject to this chapter, a small entity that is adversely affected or aggrieved by final agency action is entitled to judicial review of agency compliance with the requirements of [the RFA]"). The new judicial review provisions of the RFA include review by a court of the certification by the head of an agency that the final rule will not, if promulgated, have a significant impact on a substantial number of small entities.

II. ROLE OF THE CHIEF COUNSEL AND THE OFFICE OF ADVOCACY

The SBA's Office of Advocacy was established in 1976 by Congress under Pub. L. No. 94-305 to advocate the views of small business before federal agencies and Congress. The passage of the RFA and the SBREFA expanded the role of the Chief Counsel of Advocacy. Under the RFA, Congress mandated that the Chief Counsel of Advocacy of the Small Business Administration monitor agency compliance with the RFA. 5 U.S.C. § 612(a). The Chief Counsel must also report annually to the President and the Committees on the Judiciary and Small Business of the Senate and House of Representatives. Id.

In 1996, the Office of Advocacy reviewed approximately 2,500 proposed, interim, and final rules for their impact on small business. The review encompassed a wide range of agencies and a wide spectrum of agency compliance. In addition to reviewing rulemaking activity, the Office of Advocacy also meets with regulators, trade association representatives, and small businesses to provide guidance and information on the RFA. The Office of Advocacy also prepares relevant guides on the RFA and reports to Congress annually on areas of interest to small business.

Furthermore, the Chief Counsel was empowered by Congress to appear as amicus curiae in any action brought in a court of the United States. 5 U.S.C. § 612(b). Initially, the Chief Counsel's authority was limited to compliance with the RFA. SBREFA expanded the amicus authority to allow the Chief Counsel also to present "his views with respect to . . . the adequacy of the rulemaking record with respect to small entities, and the effect of the rule on small entities." Id.

III. SBA'S STATUTORY AUTHORITY TO DEVELOP SMALL BUSINESS SIZE STANDARDS

Section 3(a) of the Small Business Act authorizes SBA to establish criteria to measure which businesses should be categorized as "small business concerns" within an industry. 15 U.S.C. § 632(a). Section 8(b)(6) further authorizes the Agency to determine whether individual businesses meet the criteria for a small business concern. 15 U.S.C. § 637(b)(6). This provision also directs other agencies to "accept as conclusive" SBA's determination as to which firms constitute small business concerns. SBA "size" regulations are at 13 C.F.R. Part 121. SBA has promulgated size criteria (in terms of a company's annual receipts and/or number of employees) for each Standard Industrial Classification ("SIC") code set forth in the SIC Manual, issued by the United States Office of Management and Budget. 13 C.F.R. § 121.601 (1995).

The Small Business Act confers broad discretion upon SBA to issue size regulations and make determinations as to whether businesses meet the criteria to qualify as a small business concern. 15 U.S.C. §§ 632(a), 637(b)(6). Courts have given the Agency considerable deference in reviewing size determinations. See, e.g., Texas Capital Contractors, Inc. v. Abdnor, 933 F.2d 261 (5th Cir. 1990) ("TCCI") (affirming summary judgment for SBA in size determination case); Allen M. Campbell Gen. Con., Inc. v. Lloyd Wood Const. Co., 446 F. 2d 261, 264-65 (5th Cir. 1971) ("Campbell"); Dani Enter. v. U.S. Small Business Admin., 757 F. Supp. 99, 103 (D.D.C. 1991) (SBA's interpretation of its own regulations in making size determination must be given broad deference).(1)

I. HISTORY OF THE DEFENDANTS' PROMULGATION OF THE SURFACE MINING RULE.

A. Background.

Section 302(b) of the Federal Land Policy and Management Act of 1976 ("FLPMA") directs the Secretary of Interior to prevent unnecessary or undue degradation of public lands from activities conducted pursuant to the Mining Law of 1872. The Defendants' original regulations implementing section 302(b) of FLPMA went into effect on January 1, 1981. The rule, 43 C.F.R. § 3809.1-3, required mining claimants to complete reclamation during and upon termination of exploration and mining activities under the mining laws on federal lands administered by Defendants. The rule classified mining operations in terms of casual use, notice operations, or plan of operations. The bonding requirement for plans of operation were at Defendant's discretion. 43 C.F.R. § 3809.0-5. Bonds were not required for casual use or notice operations unless there was a pattern of violation.

B. The Proposed Rule.

In July 1991, Defendants proposed a rule on Hardrock Bonding. The proposed rule explained that bonding or other financial or surety arrangements would be useful to protect against unnecessary and undue degradation of land. AR at 000001. The proposal required submission of financial guarantees for reclamation for all operations greater than casual use, created additional financial instruments to satisfy the requirement for a financial guarantee, and amended the noncompliance section of the regulations to require the filing of plans of operations by operators who establish a record of noncompliance. AR at 000001.

The proposed rule required "notice operators" to certify the existence of a financial guarantee in the amount of $5,000. AR at 000002. Operators proceeding under a "plan of operations" were required to provide a financial guarantee sufficient to cover the performance of the reclamation. The financial guarantee was capped at $1,000 per acre for exploration activities and $2,000 for mining activities. AR 000002.

In terms of the RFA, the Defendants did not perform an initial regulatory flexibility analysis of the proposed rulemaking. Instead, the agency stated, without any explanation, that "under the Regulatory Flexibility Act (5 USC § 601 et seq.) that the proposed rule will not have a significant economic impact on a substantial number of small entities." AR 000003. The "certification" was devoid of an explanation for the basis of the certification as required by 5 U.S.C. § 605(b) of the RFA in 1991 (at that time, pre-SBREFA, a "succinct" statement was required).

The comment period for the proposal closed on October 9, 1991. Defendants received 218 comments on the rule. AR 000013-000837. A number of the comments were from small operators and many indicated that the bonding requirements as proposed would be economically burdensome for smaller operators.(2)

C. The Final Rule.

Nearly six years elapsed before Defendants published the final rule in the Federal Register on February 28, 1997. AR 000917. In the final rule, Defendants changed the bonding requirement for "notice operations." Instead of requiring notice operations to provide a financial guarantee in the amount of $5,000 (essentially, a ceiling) as proposed in 1991, Defendants unilaterally decided, under the final rule, to require notice level operators to provide a bond sufficient to cover 100 percent of the estimated costs of reclamation with a minimum rate of $1,000 per acre (essentially, a floor). AR 000918. In addition, Defendants amended the rule to include another significant requirement not discussed in the proposed rule that only professional engineers provide the certification of operators' calculation of the cost of reclamation. AR 000919,000920.

Just as Defendants failed to submit an initial regulatory flexibility analysis in the proposed rule, Defendants also failed to submit a final regulatory flexibility analysis in the final rule. Instead, Defendants certified that the final rule would not have a significant economic impact on a substantial number of small entities. AR 000920. The statement and supporting "analysis" were based on a definition of "small miner" that differed from the definition in SBA's regulations. Defendants neither consulted with the Office of Advocacy prior to using the different definition as required by the RFA nor provided a rationale for selecting an alternative size standard. Indeed, the size standard used by Defendants in the final rule even differed from the size standard employed in the Determination of Effects. Like the deviation from the SBA size standards, Defendants provided no reason for the deviation from the standard employed in its own the Determination of Effects document.

I. STANDARD OF REVIEW

A. Standard of Review For APA Claims.

The APA requires that a reviewing court set aside an agency's decision if it was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). In addition, the reviewing court shall hold unlawful and set aside agency action, findings, and conclusions found to be "without observance of procedure required by law." 5 U.S.C. § 706(2)(D); see Kooritzky v. Reich, 17 F.3d 1509, 1514 (D.C. Cir. 1994) (failure to comply with APA procedural requirements was ground for remanding regulation to Agency).

In reviewing an agency action under the APA, a court should "consider whether the decision was based on a consideration of the relevant factors and whether there was a clear error of judgment." Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971) ("Overton Park"); Motor Vehicles Mfrs. Ass'n v. State Farm Mut. Ins. Co., 463 U.S. 29, 43, 103 S. Ct. 2856, 77 L.Ed.2d 443 (1983) ("State Farm"). Although "[t]he court is not empowered to substitute its judgment for that of the agency's," Overton Park, 401 U.S. at 416, it "must determine whether the agency has articulated 'a rational connection between the facts found and the choice made.'" Kisser v. Cisneros, 14 F.3d 615, 619 (D.C. Cir. 1994) (quoting Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 285 (1974). As the Supreme Court explained:

Normally, an agency rule would be arbitrary and capricious if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. The reviewing court should not attempt itself to make up for such deficiencies; we may not supply a reasoned basis for the agency's action that the agency itself has not given.

State Farm, 463 U.S. at 43.

B. Standard of Review For RFA Claims.

The concept of judicial review is relatively new with respect to its application to the RFA. As discussed above, SBREFA amended the RFA to state expressly that judicial review should be "in accordance with chapter 7" (i.e., 5 U.S.C.§ 706(2)(b)). 5 U.S.C. § 611(a)(1). That is, the standard for review in cases challenged under the judicial review provisions of the RFA are subject to the arbitrary and capricious standard of review.(3)

As one court recently stated:

Agency actions under both [the RFA and the Magnuson-Stevens Act] are to be reviewed for compliance in accordance with Administrative Procedure Act . . . [and that] a court shall 'hold unlawful and set aside agency action, findings, and conclusions found to be-(A) arbitrary, capricious, and abuse of discretion, or otherwise not in accordance with law ....'

North Carolina Fisheries Assoc., Inc. v. North Carolina, No. 2:97--339 (E.D. Va. October 10, 1997) (citations omitted) (attached as SBA's Exhibit 1). Courts must, thus, review agency compliance with the RFA under the "arbitrary and capricious" or "not in accordance with law" standard of the APA.(4)

C. Deference to SBA Definitions of Small Businesses

Section 3(a) of the Small Business Act authorizes SBA to establish criteria to measure which businesses should be categorized as "small business concerns" within an industry. 15 U.S.C. § 632(a). Section 8(b)(6) further authorizes the Agency to determine whether individual businesses meet the criteria for a small business concern. 15 U.S.C. § 637(b)(6). This provision also directs other agencies to "accept as conclusive" SBA's determination as to which firms constitute small business concerns. Agencies may only depart from SBA's size standard if they comply with the following statutory criteria:

Unless specifically authorized by statute, no Federal department or agency may prescribe a size standard for categorizing a business concern as a small business concern, unless such proposed size standard-(i) is proposed after an opportunity for public notice and comment; (ii) provides for determining [size based on criteria outlined in 15 U.S.C. § 632(C)(ii)(I-IV)]; and (iii) is approved by the Administrator [of SBA]. 15 U.S.C. § 632(a)(2)(C).(Emphasis added)

SBA "size" regulations are found at 13 C.F.R. Part 121. SBA has promulgated size criteria (in terms of a company's annual receipts and/or number of employees) for each Standard Industrial Classification ("SIC") code set forth in the SIC Manual, issued by the United States Office of Management and Budget. 13 C.F.R. § 121.201 (1996).

The Small Business Act thus confers broad discretion upon SBA to issue size regulations and make determinations as to whether businesses meet the criteria to qualify as a small business concern. Courts have given the Agency considerable deference in reviewing SBA decisions regarding whether a business should be considered "small." See, e.g., Texas Capital Contractors, Inc. v. Abdnor, 933 F.2d 261 (5th Cir. 1990) (affirming summary judgment for SBA in size determination case); Allen M. Campbell Gen. Con., Inc. v. Lloyd Wood Const. Co., 446 F. 2d 261, 264-65 (5th Cir. 1971) ("Campbell"); Dani Enter. v. U.S. Small Business Admin., 757 F. Supp. 99, 103 (D.D.C. 1991) (SBA's interpretation of its own regulations in making size determination must be given broad deference).(5)

A review of Defendants' compliance with the RFA does not involve review of a "technical decision involving the exercise of [BLM's] discretion or expertise." Scheduled Airlines Traffic Offices, Inc. v. Department of Defense, 87 F.3d 1356 (D.C. Cir. 1996) ("SATR"). "Instead", the court faces "a pure question of statutory interpretation independent of the complex factual determinations or policy judgments particularly within the agencies' expertise." Id.at 1361.

Moreover, this is not a case in which BLM's interpretation of the RFA is entitled to deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). For "such deference is inappropriate here because [Defendants have] not been entrusted to administer, and thus has no authority to interpret the [RFA]." See SATR, 87 F.3d at 1356; Professional Reactor Operator Soc. v. United States NRC, 939 F.2d 1047, 1051 (D.C. Cir. 1991) (no Chevron deference owed to agency interpretation of statutes" outside of agency's particular expertise and special charge to administer."). Indeed, given the SBA's express statutory authority to develop size standards for small businesses and the SBA Chief Counsel's unique role under the RFA and SBREFA, discussed above, deference should be to SBA, not to Defendants.

II. DEFENDANTS' FAILURE TO COMPLY WITH THE CLEAR REQUIREMENTS OF THE RFA COMPELS A REMAND OF THE SURFACE MINING RULE.

In certifying that the final rule did not have a significant economic impact on a substantial number of small businesses, Defendants failed to comply with the RFA's clear requirements regarding the definition of a small business entity. Although defendants now argue that the RFA's requirements are optional, their arguments are patently invalid. This blatant procedural defect requires a remand of the rule for a proper evaluation of its potential impact on the affected small business community.

The RFA provides:

the term "small business" has the same meaning as the term "small business concern under section 3 of the Small Business Act [15 U.S.C. § 632], unless an agency, after consultation with the Office of Advocacy of the [SBA] and after opportunity for public comment, establishes one or more definitions of such term which are appropriate to the activities of the agency and publishes such definition in the Federal Register.

5 U.S.C. § 601(3). As discussed above, the Small Business Act sets forth additional requirements for departing from SBA's standard for a small business unless "specifically authorized by statute". 15 U.S.C. § 632(a)(2)(C). Acting pursuant to its broad statutory authority to define small businesses, 15 U.S.C. §§ 632(a), 637(b)(6), SBA has determined that the definition of a "small miner" is a business with fewer than 500 employees. 13 C.F.R. § 121.201 Division B (1996).

BLM failed to employ the SBA definition of small miner and failed to comply with the RFA in adopting an alternative definition. Instead, in allegedly evaluating the economic impact of the regulation, BLM employed a definition of "small miner" as an entity with 1-10 mining claims, relying on a definition from the Omnibus Budget Reconciliation Act of 1993, 107 Stat. 312, 405-407 (1993) ("OBRA") AR at 000904. In adopting the alternative standard, BLM failed to comply with the clear requirements of the RFA. First, BLM did not consult with the Office of Advocacy prior to adopting the alternative standard. Second, and most importantly, BLM failed to offer an opportunity for public comment on this standard, as required by the RFA. Indeed, Congress did not even formulate the OBRA definition of 1-10 claims until after BLM issued the proposed rule.

Defendants now attempt to justify this non-compliance with the RFA's unambiguous mandate with several unpersuasive arguments. First, Defendants argue that the RFA's requirements as to the proper definition of an affected small business are merely "suggestions" that agencies can freely ignore. See Defs. Mem. at 25 (citing 126 Cong. Rec. 21,458 (August 6, 1980) (statement of Senator Culver)). Their reliance on an (obviously out of context) floor statement by Senator Culver to construe the unambiguous language of the RFA definition of "small business" is clearly misplaced and must be rejected ab initio. See, e.g., Chevron, USA, Inc v. NRDC, 467 U.S. 837, 842-843 (1984) (If the intent of Congress is clear, that is the end of the matter; for the court as well as the agency, must give effect to the unambiguously expressed intent of Congress.). Even if resort to the legislative history were proper, arguendo, the vague comment upon which defendants rely in no way compels the statutory construction they now advocate.(6)

Defendants also assert that BLM was not required to consult with the Office of Advocacy or obtain SBA's approval for a size standard because Congress already provided for a definition of "small miner" in OBRA. Defs. Mem. at 24-25. This assertion, once again, indefensibly misreads the clear language of the RFA and the Small Business Act and fails to justify the BLM's wanton non-compliance with the statute.

As discussed above, the Small Business Act only permits an agency to avoid using SBA's size standard or promulgating a standard subject to SBA approval if the statute "specifically authorize[s]" such a departure. 15 U.S.C. § 632(a)(2)(C). Defendants cite no language in OBRA (and indeed cannot) which would expressly constitute such authorization.

Moreover, there is no evidence that Congress intended the "small miner" exemption in OBRA to serve as a definition of a small miner for regulatory purposes in this case or any other regulatory scheme. The fact that the OBRA contains provisions which exempt certain businesses from paying a $100 rental fee simply is not the same as establishing a statutory definition for a "small miner."(7)

In short, defendants have failed follow the unambiguous requirements in the RFA and the Small Business Act regarding the definition of the affected small business community. Promulgation of the final rule was, therefore, "without observance of procedure required by law," requiring a finding that the rule was unlawful and should be set aside under 5 U.S.C. § 706(2)(D). Kooritzky, 17 F.3d at 1514. Moreover, the absence of a proper definition of an affected small business eliminates the entire foundation for defendants' conclusion that the regulation would not have a significant economic impact on a substantial number of small businesses. The only proper recourse, therefore, is to remand the rule to the agency for a proper evaluation of the regulation's economic impact.

III. DEFENDANTS' USE OF CONTRADICTORY DEFINITIONS OF AFFECTED SMALL BUSINESSES WAS ARBITRARY AND CAPRICIOUS AND COMPELS

A REMAND OF THE REGULATION.

Even if Defendants' failure to comply with the clear requirements of the RFA regarding the definition of affected small businesses was justifiable, arguendo, their certification as to the economic impact of the final rule on small businesses was arbitrary and capricious under the APA because defendants relied on differing (and contradictory) definitions of affected small businesses. These defects require a remand to the Agency for more rational deliberations.

BLM issued two economic impact certifications, one in the final rule and one in a document entitled Determination of Effects ("DOE"), which was incorporated by reference into the final rule. Each certification claimed that the final rule would have no significant economic impact on a substantial number of small entities. However, each certification is based on different and incongruous size standards. For purposes of clarity, the certification contained in the final rule shall be called "Final Rule Certification", and the certification contained in the DOE shall be called "DOE Certification."

The Final Rule Certification included the following definition of an affected small business:

For the purposes of this analysis, a small entity is considered to be an individual, small firm, or partnership at arm's length from the control of any parent companies.

AR at 920. In the Final Rule Certification, BLM also stated that "the reasons for this determination are stated here and may also be found in the Determination of Effects cited above." Id.

In the DOE certification, however, BLM mentioned this definition, A.R. at 904, but in discussing its conclusion regarding the rule's economic impact, it relied on a completely different definition. It stated "[t]hese 498 [significantly affected] operators represent 1.34 percent of all small scale operators and sole proprietors holding interest in 1 to 10 mining claims."(emphasis added) AR at 000905. Defendants offered no explanation for its reliance on this contradictory definition, rather than a definition based upon "an individual, small firm, or partnership at arm's length from the control of any parent companies."

As further confirmation of BLM's lack of a coherent explanation for its economic impact certification, the Agency offered a seemingly varying series of small business definitions in its DOE Certification. AR at 000904.(8) Throughout defendants' discussions regarding size, BLM failed to identify clearly which size standard was being used to define small miner. The various small business definitions in the final rule and the DOE are conflicting and cannot be reconciled. Such a conflict is inherently arbitrary and capricious because the agency has not provided a reasoned basis for its action. Moreover, it is not possible to assess the adequacy of an agency's certification if it is not clear how the size definitions relate or apply to the rule. Since Defendants have provided no rational record upon which to comment, the agency's action must be considered arbitrary and capricious. In such a case, the court may not supply a reasoned basis where the agency has not done so itself, but should remand the action to the agency. See generally Kisser v. Cisneros, 14 F.3d at 619.

IV. BLM'S USE OF THE OBRA SMALL MINER DEFINITION WAS ARBITRARY AND CAPRICIOUS.

Even if BLM had employed only one definition of an affected small business, relying on the OBRA legislative history, that reliance would also be arbitrary and capricious.

It is clear from the legislative history of the OBRA that Congress intended to carve out a temporary fee waiver for small miners, but that it was not attempting to enact a definition of miners that would constitute small business. Indeed, the term "small miner" appears only in the legislative history and not in the codified version of the waiver for the hardrock mining claim maintenance fee. See 30 U.S.C. § 28f(d). The codified version reads:

[t]he claim maintenance fee required under this section may be waived for a claimant who certifies ... that ... the claimant and all related parties-held not more than 10 mining claims, mill sites, or tunnel sites, or any combination thereof, on public lands ....

Id. (Emphasis added). Thus, there is no way to glean from the statute that Congress intended to define anything other than a "claimant" with no more than 10 claims for purposes of determining eligibility for a waiver.(9)

Moreover, it is also apparent that Congress intended the definition to apply for only a limited time. Senator Stevens, the drafter of the small miner amendment, stated at the outset of the debates on this issue that, "this is an amendment that I call a small miner provision for the holding fee." 138 Cong. Rec. S11556-02, S11582. (August 5, 1992) (emphasis added). Senator Bumpers, the Chairman of the Senate Small Business Committee, stated that "the fee in this bill is limited to 2 years, and we will likely revisit this issue in the future when we have more information to make a reasoned judgment about the definition of a small miner." 138 Cong. Rec. S15843-01 at S15849 (September 30, 1992, Debates on Department of the Interior and Related Agencies Appropriations Act, FY 1993-Conference Report).

Moreover, OBRA contains another definition of "small miner" which BLM failed to consider in issuing its economic impact certification. There are specific references to "small coal operators" in the statute that relate to remittance of fees for surface mining control and reclamation permits. Under 30 U.S.C. § 1257(c), if the probable total annual production at all locations of a coal surface mining operator will not exceed 300,000 tons, the cost of certain activities are assumed by the regulatory authority if requested by the operator in connection with a permit application. Those activities for which the cost will be assumed by the regulatory authority include: the development of cross-section maps and plans, the geologic drilling and statement of results of test borings and core samplings, pre-blast surveys, etc. See 30 U.S.C. § 1257(c)(1)(A-F). Those entities defined as "small coal operators" are therefore exempt from paying the aforementioned costs upon request.

It is unclear why BLM selected the claim maintenance fee "definition" for mining "claimants" and failed even to consider the "small coal operators" definition. The fact that the agency apparently engaged in "cherry picking" to select its size standard without specifically explaining and rejecting other statutory options, again, is indicative of the arbitrary and capricious nature of its economic impact certification.

V. THE ABSENCE OF ANY RATIONAL BASIS FOR BLM'S

ECONOMIC IMPACT CERTIFICATION AND THE AGENCY'S

FAILURE TO CONSIDER IMPORTANT ASPECTS OF

THE REGULATION FURTHER COMPEL A REMAND.

SBREFA requires federal agencies to provide a non-succinct statement of factual basis for certifying that a rule does not have a significant economic impact on a substantial number of small entities. 5 U.S.C. § 605(b). In addition to the deficiencies with the certification, discussed above, BLM failed to provide an adequate and rational "factual basis" to justify its conclusion that the rule would not have a significant economic impact on a substantial number of small entities. Indeed, BLM adopted a small business definition which bore no rational relationship to the economic effects of the regulation and which failed to consider significant economic consequences of the regulation in making its impact certification. Thus, BLM's certification lacked the rational basis needed to survive scrutiny under the APA.

First, BLM's adoption of a small business definition that relies on the number of claims a business holds, rather than its employees or receipts, bears no logical relationship to Defendants' conclusions regarding economic impact. In the final rule, BLM required "small miners" to pay a minimum per acre bond of the greater of 100% of the estimated costs or $1000 per acre. AR at 000918. The Agency, however, failed to define a "claim"; presumably, therefore, it could encompass from one or a thousand acres. A small miner with 1-10 claims may have 10 claims with a total of only 10 acres, or 1-10 claims with a total of 10,000 acres. The cost, therefore could range (in this example) from $10,000 to $1,000,000. There is, thus, no logical connection between the definition of a small miner based on the number of claims and a guarantee requirement based upon the amount of acreage a company controls.

Second, BLM recognized a number of potential economic consequences that could likely result from the regulation, but assessed only one of these consequences in its economic impact certification.

In the Final Rule Certification, BLM stated:

The economic effect on these small operators will be either to require them to acquire a financial guarantee for each new notice or avoid new operations on claims for which they do not acquire a financial guarantee . . . [T]he practical effect will be the elimination of new activities on certain claims . . . and the removal of some properties from their inventory of holdings, or else operators will attempt to lease the claim to a junior or major company that has the financial resources to post financial guarantees.

62 Fed. Reg. 9093, 9099 (emphasis added).

While financial guarantees were discussed in vague terms throughout the document, only firms who forfeited claims as a result of the financial guarantees were scrutinized for economic impacts in the Final Rule and DOE Certifications. AR at 000920 and AR at 000904-05.

BLM did not explain why firms "acquiring a financial guarantee" which do not forfeit claims would not be significantly affected. In fact, BLM's Determination of Effects stated, "[t]his is the class of operators [sole proprietorships and individual prospectors] with the fewest funding options . . . funds . . . will likely come from operating cash flows or direct individual assets." AR at 000903. For those firms without sufficient funds their option is "avoid new operations" (i.e., forego new sources of potential income). The Department provided no quantitative analysis to demonstrate that firms with so few funding options would not be significantly affected.

Similarly, there is an inadequate factual basis to explain why the "removal of some properties from their inventory" (i.e., abandon sources of income) would not have a significant economic impact on small businesses. BLM indicated that those small businesses that cannot maintain a financial guarantee on their properties can "attempt to option out the property to a junior or a major company with a lease agreement." AR at 000904.

No further estimates are given for firms significantly affected in other ways by the financial guarantees or by other elements of the rulemaking. For instance, the Agency did not account for firms that are forced to use assets as collateral or tap other cash in order to provide a financial guarantee. Arguably, the requirement could have a significant impact on a small business. However, BLM provided no rational rulemaking record to determine whether the requirement would be significant or not.

Third, BLM utterly failed to discuss the economic consequences of the two other major provisions of the final rule: (1) use of professional engineering services; and (2) reclamation of disturbed lands. AR at 000904 and 000900. In addition to the financial guarantees, the agency's DOE contained cost estimates for professional engineering services and reclamation, but it did not analyze the number of firms that would be significantly affected by these costs. The absence of this calculation undermines the basis of the agency's subsequent determination that the rule will not have a significant impact on a substantial number of small entities.

Fourth, the DOE Certification contained another flawed theory as to why the impact of the rule on small businesses would not be significant. This certification provides, "[t]he effect, however, will fall mostly on large and very large mining operators, rather than sole proprietors." First, there is no evidence provided in the administrative record that demonstrates that the costs are greater for large companies. AR at 000903.(10) Second, the greater impact of the rule on large firms is not a reliable means for determining that a rule will not have a significant economic impact on small business. The effects on both groups could be very substantial.

The competitive disadvantage that is advanced by across-the-board financial requirements goes against the purposes outlined in the RFA. 5 U.S.C. §§ 601 et. seq.. When the RFA was passed in 1980, Congress included among its findings, "[T]he failure [of federal agencies] to recognize differences in scale and resources of regulated entities has in numerous instances adversely affected competition in the marketplace, discouraged innovation and restricted improvements in productivity." Pub. L. 96-354. BLM's certifications fail to offer an explanation as to why the disproportionate burdens on small businesses will not have a significant economic impact.

In sum, BLM has provided an irrational and defective basis for concluding that the regulation would not have a significant economic effect on a substantial number of small businesses. BLM has "entirely failed to consider [] important aspect[s] of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise." State Farm, 463 U.S. at 43. Thus, the Court should remand the regulation for further deliberations.

WHEREFORE, for the foregoing reasons, Amicus Curiae, Chief Counsel for Advocacy respectfully requests that the Court enter summary judgment for plaintiff pursuant to Rule 56 and remand the rule to Defendants for further deliberations.(11)

Respectfully submitted,

________________________________
JERE W. GLOVER
U.S. Small Business Administration
Office of Advocacy
409 Third Street, S.W.
Suite 7800
Washington, D.C. 20416

________________________________
SHAWNE CARTER MCGIBBON
U.S. Small Business Administration
Office of Advocacy

________________________________
JENNIFER A. SMITH
U.S. Small Business Administration
Office of Advocacy

ENDNOTES<>

1. See also Central States Constr. Co. v. SBA, 770 F. Supp. 1447, 1452-53 (D. Kan. 1991) (upholding SBA denial of admission to minority contracting Program); Neuma Corp. v. Abdnor, 713 F. Supp. 1, 3 (D.D.C. 1989) (same); San Antonio Gen. Maintenance, Inc. v. Abdnor, 691 F. Supp. 1462, 1468 (D.D.C. 1987); Little v. United States, 489 F. Supp.
1012, 1017 (C.D. Ill. 1980), aff'd mem., 645 F.2d 77 (7th Cir. 1981).

2. In the final rule, BLM summarized the comments of mining associations and other individuals, "[M]ining associations and some individuals agreed that the proposed rules were necessary, but argued that the $5,000 bond for notice level operations is excessive...[and] many of the individuals argued that the proposal discriminates against small miners and would force them out of business, if implemented." 62 Fed. Reg. at 9094. (February 28, 1997).

3. The legislative history supports this reading of the RFA in that Rep. Hyde, the bill's Floor Manager stated that review under the RFA "is not limited to the agency's compliance with the procedural aspects of the RFA" and that final agency actions under these sections will be subject to the normal judicial review standards of Chapter 7 of Title 5" meaning the "arbitrary and capricious" standard. 142 Cong. Rec. E571-01, E574 (daily ed., Mar. 28, 1996)

4. See also Associated Fisheries of Maine, Inc., v. Daley, WESTLAW 563584 (1^st Cir. September 16, 1997) (attached as SBA's Exhibit 2) (standard of review for RFA should be similar to review under the National Environmental Policy Act ("NEPA")) and Marsh v. Oregon Natural Resources Council, et al., 490 U.S. 360 at 376; 109 S. Ct. 1851, 1861 (1989) (applicable standard of review in NEPA cases is arbitrary and capricious).

5. See also Central States Constr. Co. v. SBA, 770 F. Supp. 1447, 1452-53 (D. Kan. 1991) (upholding SBA denial of admission to minority contracting Program); Neuma Corp. v. Abdnor, 713 F. Supp. 1, 3 (D.D.C. 1989) (same); San Antonio Gen. Maintenance, Inc. v. Abdnor, 691 F. Supp. 1462, 1468 (D.D.C. 1987); Little v. United States, 489 F. Supp. 1012, 1017 (C.D. Ill. 1980), aff'd mem., 645 F.2d 77 (7th Cir. 1981).

6. Although Senator Culver stated that, "it is not intended that the Small Business Act definition be established as an absolute standard," this merely recognizes that agencies can adopt alternative standards if they follow the procedural requirements of the RFA discussed above. See 126 Cong. Rec. 21,458 (August 6, 1980).

7. Moreover, as discussed below, defendants' reliance on the OBRA definition however, lacks a rational basis.

8. The DOE offered the following incongruous definitions: (1) a '[S]mall entity' [is] . . . an individual or a limited partnership, considered to be at 'arm's length' from the control of its parent companies." (2) Defendant believes that a definition of small entity which takes into account revenue, at least in part, provides a truer test of the impact of this regulation on an entity that would be considered small." (3) "Congress' definition of a small miner in the maintenance fee provisions of the Omnibus Reconciliation Act echoes this concept of recognizing an entities' [sic] ability to pay or have access to funds.

9. The small miner exemption contained in the OBRA implies, if anything, that Congress intended to exempt miners with 1-10 claims from the apparently onerous $100 fee.

10. Regarding the adverse effects on major corporations, the DOE stated, "They can easily absorb any additional financial responsibility created by the regulations." Regarding the adverse effects on limited partnerships, the DOE stated, "Funding options for their financial liability for notices and plans under these regulations will range from established lines of credit with financial institutions to posting company assets and collateral to cover liability. . . with no established financial track record, the money will probably come from internal cash flow." For sole proprietorships and individual prospectors, the DOE stated, "This is the class of operators, most of whom are notice level operators, with the fewest funding options."

11. Amicus Curiae, the Chief Counsel for Advocacy, concurs with the Plaintiff's APA arguments regarding logical outgrowth. This final rule is not a logical outgrowth of the proposed rule because of the brand new requirements for a professional engineer certification and 100% bonding, and also because of the new definition of a small business. These arguments are adequately represented by Plaintiffs.