EDITORIAL & OPINION — Court ruling respects small businesses — NWMA vs. Babbit

Small business and big government don’t always see eye to eye, and the greater the disparity, the greater the chances that might will overpower right. But that was not the case earlier this year, when the Northwest Mining Association (NWMA) won an important victory over Bruce Babbit, secretary of the United States Department of Interior.

One year and one day after the NWMA sued Babbit and the Bureau of Land Management (BLM) to invalidate onerous bonding regulations adopted in early 1997, U.S. District Court Judge Green granted NWMA’s summary judgment and remanded the new bonding rules back to BLM after she found that Babbit and the BLM had violated federal law. At issue was whether the BLM had properly considered the effect of its ruling on small business, a measure required by the Regulatory Flexibility Act (RFA).

Passed by Congress in 1980, this Act requires federal agencies to produce an analysis of how rules they propose will affect small businesses ranging in size from farms to small local governments. But the Act had no teeth, as it did not allow for any meaningful judicial review. As a result, federal agencies were not held accountable when they failed to meet the obligations outlined by the law.

That changed in 1996, when the Republican-dominated Congress passed the Small Business Regulatory Enforcement Fairness Act (SBREFA). This Act meant federal agencies could be sued if they violated the law by failing to consider properly the effect of a proposed regulation on small business. Small business — an increasingly powerful sector of the economy because of its high rate of job creation — applauded the move, as it meant government officials would have to take their needs into account when setting policy. And it gave them the power to take legal action.

The critical test came when BLM, in an attempt to secure funds for land reclamation, issued a notice that it would propose a rule amending its bonding requirements. The final rule, issued in 1997, meant that bonds would be required for all mining operations with greater than negligible land disturbances. However, BLM did not submit an analysis of the rule’s effect on small businesses. Instead, it stated that the rule would not have a significant impact on a substantial number of small entities. “Small entities” were defined as “an individual, small firm or partnership at arm’s length from control of any parent companies.”

The NWMA sued for violation of the RFA, alleging that BLM had failed to follow proper procedures and use the Small Business Administration’s definition of a “small miner.” It also alleged that BLM had violated the Act by improperly adopting an alternative definition.

NWMA’s victory means the mining industry can go back to bonding rules that were in effect prior to March 31, 1997. It means 100% reclamation bonding is no longer required, except for operations that use cyanide or other leachates, have acid rock drainage, or are in non-compliance. And very small operations no longer need to provide a bond.

The NWMA says it pursued the case not because it opposes high environmental standards for mining operations. The lawsuit was about due process, not bonding. The association says that, in order to protect the environment against the most potentially dangerous mining operations, the BLM need only have exercised its pre-existing powers.

The judge agreed, stating, in her 14-page ruling, that “while recognizing the public interest in preserving the environment, the court also recognizes the public interest in preserving the rights of parties which are affected by government regulation to be adequately informed when their interests are at stake and to participate in the regulatory process as directed by Congress.”

The ruling reinforced SBREFA’s role as a small business bill of rights. The message is that federal agencies are not only responsible for respecting the rights of small businesses in the rule-making process; they are also accountable to the businesses they attempt to regulate.