Motor Vehicle Manufacturers Ass’n v State Farm and arbitrary/capricious review
🔹 I. Background: What Is "Arbitrary and Capricious" Review?
Under 5 U.S.C. § 706(2)(A) of the Administrative Procedure Act (APA):
A court shall "hold unlawful and set aside agency action, findings, and conclusions found to be... arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law."
This standard is used to review administrative agency decisions, ensuring agencies act rationally, explain their reasoning, and consider relevant factors.
🔹 II. Motor Vehicle Mfrs. Ass’n v. State Farm (1983) – Landmark Case
🧑⚖️ Facts:
In 1977, the National Highway Traffic Safety Administration (NHTSA) issued a rule mandating passive restraints (like airbags or automatic seat belts) in new cars.
In 1981, under President Reagan, the NHTSA rescinded the rule, citing ineffectiveness and cost concerns.
⚖️ Issue:
Did the NHTSA's rescission of the passive restraint requirement violate the APA's "arbitrary and capricious" standard?
🏛️ Holding:
Yes. The Supreme Court held that the NHTSA acted arbitrarily and capriciously in rescinding the rule without a reasoned analysis.
📚 Reasoning:
The Court outlined key elements of arbitrary/capricious review:
Agency must examine relevant data.
Agency must articulate a satisfactory explanation for its action.
Must include rational connection between facts and decision.
Failure to consider important aspects of the problem is unlawful.
Agency cannot offer explanation counter to the evidence.
Change in policy requires a reasoned justification.
🔑 Quote:
“The agency must cogently explain why it has exercised its discretion in a given manner.”
🔹 III. Key Cases That Apply or Expand on State Farm
1. FCC v. Fox Television Stations, Inc., 556 U.S. 502 (2009)
Facts: The FCC changed its policy and started penalizing broadcasters for “fleeting expletives,” reversing prior tolerance.
Issue: Was the agency's policy change adequately justified under the APA?
Holding:
The Court ruled that agencies can change policies, but must acknowledge the change and provide a reasoned basis.
Significance:
✔ Reaffirmed State Farm
✔ Introduced idea that “change of policy” must meet same rationality standards, even if old policy was reversed.
2. Encino Motorcars, LLC v. Navarro, 579 U.S. 211 (2016)
Facts: The Department of Labor changed its interpretation of a regulation regarding overtime pay for service advisors.
Issue: Did the agency’s change meet the standards of arbitrary and capricious review?
Holding:
The Court struck down the rule change because the agency failed to provide a reasoned explanation.
Significance:
✔ A change in policy must not be conclusory
✔ Agencies must consider reliance interests of parties affected by prior policies
3. Department of Homeland Security v. Regents of the University of California, 591 U.S. ___ (2020)
Facts: The Trump administration sought to rescind DACA (Deferred Action for Childhood Arrivals).
Issue: Was the rescission arbitrary and capricious?
Holding:
Yes. The DHS failed to consider alternatives and didn’t account for reliance interests.
Significance:
✔ One of the most prominent modern applications of State Farm
✔ Agencies must thoroughly evaluate consequences before changing longstanding policies
4. Michigan v. EPA, 576 U.S. 743 (2015)
Facts: EPA regulated mercury emissions without initially considering the costs.
Issue: Can an agency ignore cost when making regulatory decisions?
Holding:
No. The agency must consider all relevant factors, including cost.
Significance:
✔ Expanded State Farm: failure to consider economic consequences is arbitrary
5. Massachusetts v. EPA, 549 U.S. 497 (2007)
Facts: EPA refused to regulate greenhouse gases, arguing policy discretion.
Issue: Was the refusal to act arbitrary and capricious?
Holding:
Yes. The agency failed to offer a reasoned explanation grounded in statutory authority.
Significance:
✔ Affirmed that even inaction by an agency can be arbitrary
✔ Required EPA to consider whether greenhouse gases endanger public health
6. Burlington Truck Lines v. United States, 371 U.S. 156 (1962)
Facts: An older but foundational case where the Interstate Commerce Commission failed to adequately explain its decision.
Holding:
Court ruled that conclusory statements and unexplained findings are insufficient.
Significance:
✔ Laid groundwork for State Farm by establishing that reasoned decision-making is required
🔹 IV. Elements of Arbitrary and Capricious Review (Post-State Farm Doctrine)
| Requirement | Meaning | Origin |
|---|---|---|
| Relevant Factors | Agency must consider all important aspects of the issue | State Farm, Michigan v. EPA |
| Rational Connection | Decision must be linked to the evidence | State Farm |
| Explanation | Agency must justify its decision with analysis | Fox, Encino |
| Policy Changes | Must acknowledge change and explain why | Fox, DHS v. Regents |
| Reliance Interests | Agency must account for people affected by prior policy | Encino, DHS v. Regents |
| Not Contrary to Evidence | Agency can't ignore contrary data | State Farm |
🔹 V. Conclusion
The decision in Motor Vehicle Mfrs. Ass’n v. State Farm is a cornerstone of modern administrative law. It enshrines the idea that:
Agencies must act rationally, explain their decisions, and consider all relevant factors—especially when changing course.
Subsequent cases have built on this, clarifying that:
Changes in agency policy must be reasoned and deliberate.
Judicial review under the APA is not toothless—courts will invalidate agency actions that are rushed, unexplained, or superficial.
Deference to agencies exists (under Chevron, etc.), but not when rational decision-making is absent.
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