Court Opinion

ID: 2924323
Source: CourtListenerOpinion
Date Created: 2015-09-11 14:01:23.190838+00
Date Added: 2024-06-11T15:22:02.979451
License: Public Domain

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

)
CENTRAL UNITED LIFE, INC., et al., )
)
Plaintiffs, )
)
v. ) Civil No. 14-1954 (RCL)
)
SYLVIA M. BURWELL, et al., )
)
Defendants. )
)
)
MEMORANDUM OPINION

Plaintiffs Central United Life Insurance Co. and Gaylan Hendricks (collectively,
“plaintiffs”) have brought this action against Sylvia Mathews Burwell, in her ofﬁcial capacity as
Secretary of the U.S. Department of Health and Human Services (“HHS”); HHS itself; Marilyn B.
Tavenner, in her ofﬁcial capacity as Administrator of the Centers for Medicare and Medicaid
Services; and the Centers for Medicare and Medicaid Services (collectively, “defendants”).
Plaintiffs sell insurance products known as “ﬁxed indemnity plans.” On March 27, 2014,
defendants issued a rule that bars plaintiffs from selling ﬁxed indemnity plans to individual
consumers unless those consumers certify that they have “minimum essential coverage” under the
Affordable Care Act. Plaintiffs seek to enjoin defendants from enforcing the rule on the grounds
that it exceeds the defendants’ statutory authority, violates the Constitution, and is arbitrary and
capricious under the Administrative Procedure Act. 5 U.S.C. § 706.

Before the Court is plaintiff 5 Motion for Permanent Injunction [3] and defendants’ Motion
to Dismiss for Lack of Jurisdiction and/or Motion for Summary Judgment [25]. Upon

consideration of plaintiff 5 Motion and Memorandum in Support thereof, defendants’ Motions to

Dismiss and for Summary Judgment, the arguments made in open court on June 19, 2015, the
entire record in this case, and the applicable law, the Court will GRANT plaintiff 3 Motion for a
Permanent Injunction [3] and DENY defendants’ Motion to Dismiss for Lack of Jurisdiction [25].
I. BACKGROUND
A. Statutory and Regulatory Framework
1. The Public Health Service Act
Congress passed the Public Health Service Act (the “PHSA”) in 1944 to set nationwide
standards for health insurance plans. Pub. L. No. 78-410, 58 Stat. 682 (1944), amended by Health
Insurance Portability and Affordability Act, Pub. L. No. 104-191, 110 Stat. 1936 (1996). The
PHSA’s standards do not govern all health insurance policies, however, and “[h]ospita1 indemnity
or other ﬁxed indemnity insurance” that is “offered as [an] independent, noncoordinated beneﬁt[]”
is deemed an “excepted beneﬁt” to which the PHSA’s requirements do not apply. See 42 U.S.C.
§ 300gg-91(c)(3).
2. The Affordable Care Act
The Affordable Care Act (the “ACA”) signiﬁcantly changed the nation’s insurance market
when it passed on March 23, 2010. Pub. L. No. 111-148, 124 Stat. 119. Among other changes,
the ACA for the ﬁrst time required that every applicable person have “minimum essential
coverage.” 26 U.S.C. § 5000A. Anyone without it must pay a tax assessment as penalty. Id. at §
5000A(b)(1), (c), (g)(1). The ACA did not change any of the PHSA provisions which deﬁned
excepted beneﬁts or exempted them from PHSA regulation.
3. HHS Regulations
On May 27, 2014, HHS issued a ﬁnal rule (the “new Fixed Indemnity Rule” or “new rule”)

which provides that ﬁxed indemnity plans will not be treated as excepted beneﬁts unless sold to

lack of a plausible policy rationale—one can certainly imagine the EPA deciding that plants built
within the previous ﬁve years were designed with superior pollution-reduction technology, and
that omitting such plants better balanced between achieving national air quality standards and
encouraging economic growth—but rather the absence of any relationship between the substance
of the agency’s interpretation and the statute it has ostensibly construed. Defendants’ proposed
requirement of “minimum essential coverage” is likewise orthogonal to the concept of “ﬁxed
indemnity insurance.”

Defendants argue that the statutory phrase “independent, noncoordinated beneﬁts” either
(a) necessarily presumes the existence of other coverage or (b) is ambiguous, and the Court should
defer to defendants’ interpretation of that language. But these words clearly do not mean what
defendants want them to. Section 300gg—91 ’s provision deﬁning “excepted beneﬁts” lists “ﬁxed
indemnity insurance” under “[b]eneﬁts not subject to requirements if offered as independent,
noncoordinated beneﬁts” (emphasis added). The only reasonable interpretation of that sentence is
that the statute looks to the seller’s conduct—are they offering the ostensibly excepted beneﬁts in

tandem with other beneﬁts?——and not the buyer’s. The statute allows for the possibility of a buyer

possessing other coverage but does not require it.

Defendants also argue that rejecting their new interpretation of “ﬁxed indemnity insurance”
would require ignoring 42 U.S.C. § 300gg-92, the provision authorizing HHS to make regulations
to accomplish the goals of the PHSA. It is undeniable that HHS has such authority. It is equally
undeniable that HHS may not use such authority to contravene the very statute they are
implementing.

2. Injunctive Relief

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Defendants argue that (a) plaintiffs” delay in ﬁling this suit “weighs against” a claim of
irreparable harm and that they are therefore unentitled to injunctive relief, (b) the equitable defense
of “unclean hands” bars plaintiffs’ request, and (c) that the balance of equities tips in favor of
denying the requested injunction. None of these arguments are convincing. Where delay is
unjustiﬁed and prejudicial, it can warrant denying a permanent injunction. See NRDC v. Pena,
147 F.3d 1012, 1026 (DC. Cir. 1998) (citing Independent Bankers Ass ’n v. Heimann, 627 F.2d
486, 488 (DC. Cir. 1980)). Defendants, however, have offered no evidence or argument that
plaintiffs’ six month delay in ﬁling this suit was either of these, let alone both, and plaintiffs have
offered both a reasonable explanation for the delay and ample (and unrebutted) reasons to believe
that they would suffer irreparable harm if the new ﬁxed indemnity rule remains in force.
According to Gaylan Hendricks’s Declaration, Pl’s Mot. Prelim. Inj, Ex. B at 5—8, the new rule
threatens the viability of plaintiffs’ business and workforce. See Tom Doherty Associates, Inc. v.
Saban Entm ’t, Inc., 60 F.3d 27, 38 (2d Cir. 1995) (“In contrast, where we have found irreparable
harm, the very viability of the plaintiffs business . . . or substantial losses of sales beyond those of
the terminated product . . . have been threatened”). Defendants insist that a six month delay
“weighs against” the ﬁnding of irreparable harm but neglect to explain how great that weight is,
or why it outweighs the serious harms they have chosen not to dispute. The Court therefore
concludes that plaintiffs’ delay does not justify denying their requested injunction.

With respect to the doctrine of unclean hands, the “doctrine only applies when there is a
direct nexus between the bad conduct and the activities sought to be enjoined.” Shondel v.
McDermott, 775 F.2d 859, 869 (7th Cir. 1985) (quoting International Union, Allied Industrial
Workers v. Local Union No. 589, 693 F.2d 666, 672 (7th Cir. 1982)). Even if defendants’

interpretation of the old ﬁxed indemnity rule is correct, plaintiffs’ history of violating the old rule

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appears to have no causal relationship to this challenge against the new one, and defendants have
not even tried to show otherwise; indeed, had plaintiffs scrupulously honored the old rule, they
would be no less doomed by the new one, and no more justiﬁed in challenging it.

Lastly, defendants argue that plaintiffs’ requested injunction would be against the public
interest because the policy goal ostensibly achieved by the new rule is a worthy one which
injunction would forestall, and though they gamely repurpose points about the legal merits of the
parties’ statutory interpretations as points about the greater good, these arguments are no more
persuasive the second time around. Insofar as defendants mean that this Court should refuse
plaintiffs’ requested injunction against the new rule, even if it is meritorious, on the grounds that
the new rule produces a net good result and enjoining it will produce a net bad one, the Court is
likewise unconvinced. Forcing federal agencies to comply with the law is undoubtedly in the
public interest, and defendants have not shown to the Court’s satisfaction that this clear benefit
would be outweighed by the harms putatively caused by plaintiffs’ policies. For these same
reasons, plaintiffs have shown that the balance of equities favors them.

3. Inapplicability of National Federation of Independent Business v. Sebelius

Finally, plaintiffs argue that the new rule contravenes the Supreme Court’s decision in
National Federation oflndependent Business v. Sebelius, 132 S. Ct. 2566 (2012), which held that
the ACA’s “individual mandate” could only survive as an exercise of Congress’s taxing power,
and that the government may not “attach [additional] negative legal consequences to not buying
health insurance, beyond requiring a payment to the IRS.” Id. at 2597. Plaintiffs are exactly
wrong: The new rule attaches negative legal consequences to the set of people who do not have
“minimum essential coverage” who choose to buy ﬁxed indemnity insurance. Unlike the people

at issue in Sebelius—who did not participate in the health insurance market at all, and were in fact

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being forced to do so—the new rule affects people who decided on their own to participate in the
market. Sebelius is therefore inapplicable and does not provide a basis on which to invalidate the
new rule.
CONCLUSION

For the foregoing reasons, plaintiff’ s Motion for Permanent Injunction will be GRANTED,
and defendants’ Motion to Dismiss for Lack of Jurisdiction and/or Motion for Summary Judgment

will be DENIED, in a separate order issued this date.

Signed by Royce C. Lamberth, Judge, on September 11, 2015.

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people “who attest, in their ﬁxed indemnity insurance application, that they have other health
coverage that is minimum essential coverage within the meaning of [the ACA].” 79 Fed. Reg.
30240, 30341. Companies selling such plans to people without the required attestation could be
penalized up to $100 per day per insured. 42 U.S.C. § 300gg-22(b)(2)(C)(i). The rule took effect
on January 1, 2015. 79 Fed. Reg. 30240, 30256. The meaning of the rule in effect before this new
rule took hold is disputed and will be addressed in the portion of this Opinion dealing with
standing; for now, sufﬁce to say that the previous rule imposed no such attestation requirement.
11. LEGAL STANDARD

Plaintiffs must establish that, among other things, they have constitutional standing to bring
this action. See US. Ecology, Inc. v. US. Dep 't of Interior, 231 F.3d 20, 24 (DC. Cir. 2000). To
establish standing, plaintiffs must show (1) they have suffered an “injury-in fact” that (2) the
defendants caused and (3) judgment in their favor is “likely” to “redress.” See Lujan v. Defenders
osz‘ldliﬁz, 504 US. 555, 560—61 (1992).

The Court reviews HHS’s decision under the Administrative Procedure Act (“APA”). 5
U.S.C. §§ 701 et seq. Under the APA, a court may set aside ﬁnal agency action that is “arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law” or “in excess of
statutory jurisdiction, authority, or limitations, or short of statutory right.” 5 U.S.C. § 706(2)(A),
(2)(C).

A court reviews “an agency’s construction of the statute which it administers” under the
two-step process of Chevron, USA, Inc. v. Natural Resources Defense Council, Inc., 467 US.
837, 842 (1984). Under Chevron, the court must determine ﬁrst “whether Congress has directly
spoken to the precise question at issue.” Id. If Congress’s intent 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.” Chevron, 467 U.S. at 842—43. “[I]f the statute is silent or ambiguous” on that
question, the court must defer to the agency's interpretation so long as it is “based on a permissible
construction of the statute.” Alabama Educ. Ass ’n v. Chao, 455 F.3d 386, 392 (DC. Cir. 2006)
(quoting Chevron, 467 US. at 843).
III. ANALYSIS
A. Standing
Plaintiffs say they have standing because the new Fixed Indemnity Rule leaves them worse
off than the old one. Defendants respond that because both versions of the rule effectively bar
plaintiffs” ﬁxed indemnity plans, plaintiffs’ requested injunction displacing the new rule with the
old would not redress their injury and they therefore lack standing. This response is, to put it
mildly, counterintuitive. If a company selling ﬁxed indemnity insurance doesn’t have standing to
challenge a rule imposing requirements on companies selling ﬁxed indemnity insurance, who
does? Defendant’s argument is a recipe for eluding judicial review. Simply
1. Properly issue a rule that nominally puts companies in a certain market out of business,
but decline to enforce the rule so that (a) no company bothers to challenge it and (b)
any challenge that does arise is arguably unripe until the rule is enforced (an argument

Defendants actually make infra). Then

2. Replace the old rule with a new one, passing whatever you like, however you like it,
so long as those companies still go out of business.

Under defendants’ curious theory of redressability, any wrongdoing at step two will never be
confronted in court: Plaintiffs would lack standing to challenge either the ﬁrst rule (which is no
longer effective and was, in any case, properly issued) or the second (which injunction cannot
redress because it is backstopped by the ﬁrst). But defendants are wrong, and the government
cannot strip a litigant of standing by chaining one harm to another in an Escheresque loop.

I. Differing Compliance Costs Can Constitute Harm

Defendants argue that (a) the old rule recognized ﬁxed indemnity plans as excepted
beneﬁts only when the plans offered beneﬁts on a “per-period” basis, i.e. every day, week, month,
or other temporal interval, and (b) plaintiffs’ ﬁxed indemnity plans do not offer beneﬁts on that
basis. Plaintiffs reply that (a) the old rule counted ﬁxed indemnity plans as excepted beneﬁts
regardless of whether they offered beneﬁts “per-service,” i.e. for every medical procedure or
treatment, or per-period, and (b) that even if the old rule required ﬁxed indemnity plans to offer
per-period beneﬁts, some of their plans offer beneﬁts on a per-period basis, citing policy brochures
which describe, among other things, beneﬁts of “$500 per day in [the intensive care unit].” Pls.
Br., Ex. A., Attach. 2 at 11. Defendants respond that plaintiffs’ plans do not provide excepted
beneﬁts because, though duration is one input into the calculation of some (but not all) beneﬁts,
even the beneﬁts that consider duration also consider the medical services provided. See, e. g., id.
at 7 (offering “$2,500 per day” for conﬁnement in the Intensive Care Unit but “$600 per day” for
anesthesia).

Even if defendants are right, however, plaintiffs note that they could have changed their
plans to comply with HHS’s old rule by paying beneﬁts on a per-period rather than per-service
basis, but cannot so accommodate the new rule, which bars the sale of ﬁxed indemnity insurance
to anyone without minimum coverage. Defendants do not dispute that this constitutes a concrete
harm. They instead respond that plaintiffs, who ﬁrst raised the possibility of changing their plans
to comply with the old rule in their motion papers, cannot by that method amend their Complaint,
which fails to allege that possibility. Defendants also argue that plaintiffs have shown no evidence
that they would stop violating the old rule if victorious. Defendants call plaintiffs’ standing theory

“speculative,” and argue that speculative theories fail to establish Article III standing.

When courts discuss standing, they often use “speculative” as a pejorative shorthand for
“theories that rest on speculation about the decisions of independent actors.” Clapper v. Amnesty
Int ’1 USA, 133 S. Ct. 1138, 1150 (2013) (emphasis added); see also 111. Pub. Tel. Ass ’n v. FCC,
752 F.3d 1018, 1027 (DC. Cir. 2014). Theories of redress that are “speculative” merely in the
colloquial sense of depending on a future uncertain event may nevertheless sufﬁce to establish
standing. See, e. g., Lujan, 504 U.S. at 560—61 (“[I]t must be likely . . . that injury will be redressed
by a favorable decision”) (emphasis added) (internal quotations marks omitted) (citing Simon v.
E. Kentucky Welfare Rights Org, 426 U.S. 26, 38 (1976)). Here, plaintiffs’ standing theory relies
not on some independent third party, but on plaintiffs’ own conduct. Additionally, as defendants
have not yet ﬁled a responsive pleading, plaintiffs may still amend their Complaint as of right. See
City of Dover v. EPA, 40 F. Supp. 3d 1, 7 (D.D.C. 2013) (citing Confederate Mem ’1 Ass  Inc., v.
Hines, 995 F.2d 295, 299 (DC. Cir. 1993)). Dismissing plaintiffs” Complaint without prejudice
for lack of standing and waiting for them to refile would be pointless. Consequently, the Court
deems plaintiffs’ Complaint amended in accordance with their representations made at the June
19, 2015 hearing regarding their preparedness to adhere, should they obtain the requested
injunction, to defendants’ interpretation of the old rule. Plaintiffs therefore have standing to bring
this action.

2. Ripen ess

Defendants, having just argued that plaintiffs’ claim is unredressable because plaintiffs are
in violation of both the old and new rules and are therefore harmed under either regime, now insist
that the suit is also unripe because the new rule has not yet been enforced, i.e. plaintiffs have not
yet been harmed by the new regime. One would have expected these arguments to be mutually

exclusive—if the old, never-enforced rule that plaintiffs failed to comply with constitutes harm for

the purposes of redressability, surely a new and not-yet-enforced rule is harm sufﬁcient for
ripeness. The Court will assume defendants meant to argue in the alternative; nevertheless,
defendants are wrong. As plaintiffs note, the law of the DC. Circuit, even after Lujan, is that “an
agency rule . . . is typically reviewable without waiting for enforcement.” Chamber of Commerce
v. FEC, 69 F.3d 600, 604 (DC. Cir. 1995). Additionally, “[t]he issue presented is a . . . pure legal
one that subsequent enforcement proceedings will not elucidate.” Id. at 604; see also Fox
Television Stations, Inc. v. FCC, 280 F.3d 1027, 1039 (DC. Cir.) (whether an agency’s action is
contrary to law is a pure legal issue).

Defendants argue that Conservation Force, Inc. v. Jewell, which held that a challenge to
agency policy is unripe unless it will “have its effects felt in a concrete way by the challenging
parties,” requires the dismissal of plaintiffs’ claim. 733 F.3d 1200, 1206 (DC. Circ. 2013). But
that case and this one could hardly be less alike. In Conservation F orce, Inc, the plaintiffs argued
that the Fish and Wildlife Service (“FWS”) had unreasonably delayed in responding (as required
by regulation) to their requests for permits, and further argued that even though those permits had
eventually been granted, plaintiffs could still challenge the “pattern or practice of delay.” Id. at
1205—06. The Conservation Force, Inc. court held that challenge unripe, noting that (1) FWS had
already proposed a rule change that removed the permit requirement and therefore made future
permit delays impossible, (2) even if that rule was never ﬁnalized, it was uncertain that plaintiffs
would apply for another permit, and (3) that even if plaintiffs did apply for another permit, it was
uncertain whether FWS would again delay. Id. at 1206. Here, on the other hand, every relevant
element the Conservation Force court relied on in holding that challenge unripe is reversed: The
new ﬁxed indemnity rule is a ﬁnal rule, not a proposed one. The parties and Court agree that

plaintiffs are this very moment violating it, so no speculation about possible future violations is

needed. And ﬁnally, plaintiffs’ threatened harm comes not from government’s failure to enforce
a rule——a presumption the Court is reluctant to embrace without evidence—but from the prospect
of the government enforcing a rule, which presumption is the norm. See Chamber of Commerce
v. FEC, 69 F.3d at 603. If anything, Conservation Force demonstrates why this case is ripe for
decision.

B. Merits

1. Chevron Analysis

The government’s new reading of the phrase “ﬁxed indemnity insurance” fails at
Chevron’s ﬁrst step because it has no basis in the statutory text it purports to interpret and plainly
exceeds the scope of the statute. The government insists that this reinterpretation is consistent
with, and indeed helps achieve, the statutory purpose. Even if that is true, it is insufﬁcient: An
agency “must ‘ground its reasons for action or inaction in the statute,’ rather than on “reasoning
divorced from the statutory text.’” Util. Air Regulatory Grp. v. EPA, 134 S. Ct. 2427, 2441
(emphasis and citation omitted) (quoting Massachusetts v. EPA, 549 US. 497, 532, 535, (2007)).
The text of the statute uses “ﬁxed indemnity insurance” to describe a category of insurance that
Congress exempted from the PHSA, and HHS cannot rewrite that category free from statutory
constraint.

Interpretation of a statute must begin with its text. Am. Fed ’n of Gov ’t Employees, AFL-
CIO, Local 3669 v. Shinseki, 709 F.3d 29, 33 (DC. Cir. 2013) (citing Milner v. Dep’t 0fthe Navy,
562 US. 562, 569 (2011)). Here, the relevant statutory language deﬁnes the set of “excepted
beneﬁts” to include, among other things, “ﬁxed indemnity insurance.” 42 U.S.C. § 300gg-
91(c)(3). The phrase “ﬁxed indemnity insurance” is undeﬁned, and the legislative history gives

no sign of what, if any, variation from everyday usage Congress envisioned.

The parties agree that what distinguishes ﬁxed indemnity insurance is that its beneﬁts are
relatively predetermined—unlike a plan whose beneﬁts could vary dramatically according to the
severity of injury or illness, ﬁxed indemnity insurance will pay, for example, $100 a week, or
(assuming per-service beneﬁts qualify) $50 per visit. 79 Fed. Reg. 30240, 30341. Plaintiffs argue
that Congress clearly intended “ﬁxed indemnity insurance” to mean insurance that “pays a ﬁxed
amount under speciﬁed conditions without regard to other insurance,” and that under Chevron this
clear meaning robs HHS of the power to reinterpret the language as requiring “minimum essential
coverage”; in the alternative, they argue that even if the language is ambiguous, an interpretation
requiring “minimum essential coverage” is unreasonable. Defendants say the phrase “ﬁxed
indemnity insurance” is ambiguous, as “pays a ﬁxed amount under speciﬁed conditions” obviously
contemplates yet-to—be—stated conditions, and that requiring “minimum essential coverage” simply
ﬁlls the gap Congress deliberately left open.

The Court recognizes that more severe injury or illness may require more visits or longer
periods of disability and thereby increase the amount of beneﬁts paid under a ﬁxed indemnity plan,
and does not decide here whether ﬁxed indemnity insurance has always necessarily included
beneﬁts paid on a per-service basis. But no matter what “ﬁxed indemnity insurance” means at its
margins, any attempt to deﬁne that phrase in a way that imports wholly foreign concepts is not an
act of deﬁnition as this Court understands it. For example, imagine a statute which regulates

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clothing but not “hats. While the word “hats” is ambiguous insofar as it does not, by itself,

explore the full range of qualifying headgear—do helmets count? Wigs?—it unambiguously does
not mean “table,” or “horse.” It also does not mean “hats, but only those hats sold to people who

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already own shoes.’ The notion of “minimum essential coverage,” which did not exist when

Congress enacted the “excepted beneﬁts” provisions of the PHSA, is no less foreign to the

deﬁnition of “ﬁxed indemnity insurance.” Congress has therefore “unambiguously foreclosed the
agency's statutory interpretation . . . by granting the agency a range of interpretive discretion that
the agency has clearly exceeded.” Vill. of Barrington, 11!. v. Surface T ransp. Bah, 636 F .3d 650,
659—60 (DC. Cir. 2011) (citing Catawba Cnty., N.C. v. EPA, 571 F.3d 20, 35 (DC. Cir. 2009)).
In the words of the Ninth Circuit,

[w]hile statutory words sometimes have more than one meaning,

and interpreting the statute may require judgment as to which of

these meanings Congress contemplated, an interpreting body may

not invent a completely new meaning for a statutory term. Any other

rule of construction would rob statutes of binding force and allow

free rein to those who implement federal statutes to do what they
wish rather than what Congress directed.

Kenaitze Indian Tribe v. State ofAlaska, 860 F.2d 312, 316 (9th Cir. 1988).
Chevron itself illustrates this line between interpretation and invention. At issue in

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Chevron was the Environmental Protection Agency’s (“EPA s ) reading of the phrase “stationary
source,” and whether the EPA could adopt a plantwide deﬁnition (treating a factory or facility with
multiple smokestacks as a single “stationary source”) rather than an individualized one (treating
each smokestack as a separate “stationary source”). Chevron, 467 US. at 840. While the
distinction is certainly signiﬁcant, both interpretations ﬂow naturally from the underlying
language, for, as Justice Stevens observed, “it is certainly no affront to common English usage to
take a reference to a major facility or a major source to connote an entire plant as opposed to its
constituent parts.” Id. at 860. The difference was one of degree rather than of kind, and
reconcilable with the statutory language.

Suppose, however, that the EPA read “stationary source” more narrowly still, and
determined not only that a “stationary source” meant entire factories or facilities rather than

individual smokestacks, but also that no factory or facility qualiﬁed as a “stationary source” unless

it had been active for over ﬁve years. Must that interpretation be honored? No. The ﬂaw is not

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