State of Utah et al v. Secretary, US Department of Housing and Urban Development et al

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IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
TYLER DIVISION
STATE OF UTAH, et al.,
Plaintiffs,
v.
U.S. DEPARTMENT OF HOUSING
AND URBAN DEVELOPMENT, et al.,
Defendants.
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Case No. 6:25-cv-1-JDK
MEMORANDUM OPINION AND ORDER
In this case, fifteen states and the National Association of Home Builders
challenge a 2024 Final Determination promulgated by the U.S. Department of
Housing and Urban Development and the U.S. Department of Agriculture. The Final
Determination heightens energy efficiency standards for certain new housing
construction. Final Determination: Adoption of Energy Efficiency Standards for New
Construction of HUD- and USDA-Financed Housing, 89 Fed. Reg. 33,112 (Apr. 26,
2024) (hereinafter, “the Final Determination”).
The agencies moved to dismiss the case, arguing that it’s not ripe because they
are reconsidering the Final Determination and have extended the compliance
deadlines. As explained herein, however, the states and homebuilders must
presently comply with at least some of the Final Determination’s requirements when
planning new housing projects. The agencies’ motion is thus denied.
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The parties also cross-moved for summary judgment on the merits. Plaintiffs
argue that the Final Determination is unlawful under the Administrative Procedure
Act for a variety of reasons. The Court agrees in part, as set forth below.
Plaintiffs first contend that the authorizing statute—Section 109 of the
Cranston-Gonzalez Affordable Housing Act, codified at 42 U.S.C. § 12709—is
unconstitutional because it delegates the power to establish energy efficiency
standards to private code bodies. Plaintiffs also argue that the statute violates the
Spending Clause, U.S. Const. art. I, § 8, cl. 1. Neither argument has merit. Section
109 does not present a nondelegation problem because the agencies retain their
decision-making authority and the private bodies remain subordinate to them. Nor
does Section 109 violate the Spending Clause because the provision includes clear
standards by which states may measure their compliance.
Next, Plaintiffs argue that the Final Determination conflicts with Section 109
and is thus unlawful under the APA. On this point, the Court agrees. First, the plain
text of Section 109 authorizes the agencies to update the energy efficiency standards
only once, which already occurred in 2015. In addition, Section 109 permits the
agencies to adopt new energy efficiency standards only if the standards would not
negatively affect the availability of new affordable-housing construction, among other
requirements. Here, however, the agencies’ own findings demonstrate that the new
standards would reduce availability by 1.5 percent. None of the agencies’ arguments
to the contrary is persuasive.
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Finally, Plaintiffs argue that the Final Determination was the product of
arbitrary and capricious rulemaking. In doing so, Plaintiffs focus almost exclusively
on the particular model used by the agencies to analyze the new standards. Plaintiffs
fail, however, to explain how the agencies’ use of that model ignored relevant factors
or evinced a clear error of judgment.
In sum, the Court grants in part Plaintiffs’ motion for summary judgment and
vacates and sets aside the Final Determination under the APA.
I.
In 2015, acting under statutory authority, the U.S. Department of Housing and
Urban Development (“HUD”) and the U.S. Department of Agriculture (“USDA”)
(together, “the agencies”) promulgated a rule requiring compliance with certain
model energy codes for new housing construction. In 2023, the agencies decided to
require compliance with more recent editions of those codes, citing the same statutory
authority.
A. The Statute. In 1990, Congress enacted the Cranston-Gonzalez
Affordable Housing Act. Pub. L. No. 101-625, 104 Stat. 4079 (1990) (codified as
amended at 42 U.S.C. §§ 12701 et seq.). The Act’s “objective” was to “reaffirm the
long-established national commitment to decent, safe, and sanitary housing for every
American,” in part by increasing “the Nation’s supply of decent housing that is
affordable” and providing “a reliable, readily available supply of mortgage finance at
the lowest possible interest rates.” 42 U.S.C. § 12702. To that end, Section 109 of
the Act required the Secretary of HUD to “promulgate energy efficiency standards for
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new construction of public and assisted housing and single-family and multifamily
residential housing . . . subject to mortgages under the National Housing Act.” 104
Stat. at 4093 (as amended, “Section 109”).
By 1992, HUD had taken no action on the required standards. Accordingly,
Congress amended Section 109 to extend the deadline for adopting standards and, if
the agency still failed to act, to adopt the standards set by certain private
organizations. Energy Policy Act of 1992, Pub. L. 102-486 § 109, 106 Stat. 2776, 2786-
87 (1992). Later, Congress extended the deadline further to September 30, 2006, and
modified Section 109, requiring the Secretary of HUD and the Secretary of USDA
jointly to establish energy efficiency standards. 42 U.S.C. § 12709(a). If the agencies
failed to act by September 30, 2006, then new housing construction would be required
to meet the standards of the 2006 International Energy Conservation Code (“IECC”)
or, for multifamily high rises, the American Society of Heating, Refrigerating, and
Air-Conditioning Engineers (“ASHRAE”) Standard 90.1-2004. Id. § 12709(b).
Congress also addressed future revisions to the 2006 IECC or ASHRAE
Standard 90.1-2004, as set forth in Section 109(c) and (d) below. Section 109 now
states as follows:
(a) Establishment.
(1) In general. The Secretary of Housing and Urban Development and
the Secretary of Agriculture shall, not later than September 30, 2006,
jointly establish, by rule, energy efficiency standards for—
(A) new construction of public and assisted housing and single family
and multifamily residential housing (other than manufactured homes)
subject to mortgages insured under the National Housing Act [12 U.S.C.
1701 et seq.];
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(B) new construction of single family housing (other than manufactured
homes) subject to mortgages insured, guaranteed, or made by the
Secretary of Agriculture under title V of the Housing Act of 1949 [42
U.S.C. 1471 et seq.]; and
(C) rehabilitation and new construction of public and assisted housing
funded by HOPE VI revitalization grants under section 1437v of this
title.
(2) Contents. Such standards shall meet or exceed the requirements of
the 2006 International Energy Conservation Code (hereafter in this
section referred to as ‘‘the 2006 IECC’’), or, in the case of multifamily
high rises, the requirements of the American Society of Heating,
Refrigerating, and Air-Conditioning Engineers Standard 90.1-2004
(hereafter in this section referred to as ‘‘ASHRAE Standard 90.1-2004’’),
and shall be cost-effective with respect to construction and operating
costs on a life-cycle cost basis. In developing such standards, the
Secretaries shall consult with an advisory task force composed of
homebuilders, national, State, and local housing agencies (including
public housing agencies), energy agencies, building code organizations
and agencies, energy efficiency organizations, utility organizations, low-
income housing organizations, and other parties designated by the
Secretaries.
(b) International Energy Conservation Code. If the Secretaries have not,
by September 30, 2006, established energy efficiency standards under
subsection (a), all new construction and rehabilitation of housing
specified in such subsection shall meet the requirements of the 2006
IECC, or, in the case of multifamily high rises, the requirements of
ASHRAE Standard 90.1-2004.
(c) Revisions of the International Energy Conservation Code. If the
requirements of the 2006 IECC, or, in the case of multifamily high rises,
ASHRAE Standard 90.1-2004, are revised at any time, the Secretaries
shall, not later than 1 year after such revision, amend the standards
established under subsection (a) to meet or exceed the requirements of
such revised code or standard unless the Secretaries determine that
compliance with such revised code or standard would not result in a
significant increase in energy efficiency or would not be technologically
feasible or economically justified.
(d) Failure to amend the standards. If the Secretary of Housing and
Urban Development and the Secretary of Agriculture have not, within 1
year after the requirements of the 2006 IECC or the ASHRAE Standard
90.1-2004 are revised, amended the standards or made a determination
under subsection (c), all new construction and rehabilitation of housing
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specified in subsection (a) shall meet the requirements of the revised
code or standard if—
(1) the Secretary of Housing and Urban Development or the Secretary
of Agriculture make a determination that the revised codes do not
negatively affect the availability or affordability of new construction of
assisted housing and single family and multifamily residential housing
(other than manufactured homes) subject to mortgages insured under
the National Housing Act (12 U.S.C. 1701 et seq.) or insured,
guaranteed, or made by the Secretary of Agriculture under title V of the
Housing Act of 1949 (42 U.S.C. 1471 et seq.), respectively; and
(2) the Secretary of Energy has made a determination under section
6833 of this title that the revised code or standard would improve energy
efficiency.
42 U.S.C. § 12709(a)–(d).
B. The 2015 Final Determination. The September 30, 2006 deadline
came and went without HUD and USDA establishing any standards. Meanwhile, the
2006 IECC and ASHRAE Standard 90.1-2004 were revised multiple times. See 75
Fed. Reg. 54,131 (Sept. 3, 2010) (Department of Energy (“DOE”) notice discussing
2009 edition of the IECC); 75 Fed. Reg. 54,117 (Sept. 3 , 2010) (DOE notice discussing
the 2007 edition of the ASHRAE standards); 77 Fed. Reg. 29,322 (May 17, 2012) (DOE
notice discussing 2012 edition of the IECC); 77 Fed. Reg. 28,928 (May 16, 2012) (DOE
final rule discussing 2010 edition of the ASHRAE standards); 79 Fed. Reg. 57,900
(Sept. 26, 2014) (DOE notice discussing 2013 edition of the ASHRAE standards).
In 2014, acting pursuant to Section 109(d), HUD and USDA published a
preliminary determination that the 2009 IECC and ASHRAE Standard 90.1-2007—
revisions to the 2006 IECC and ASHRAE Standard 90.1-2004—would not negatively
affect the affordability and availability of covered housing. Preliminary Affordability
Determination—Energy Efficiency Standards, 79 Fed. Reg. 21,259 (Apr. 15, 2014). A
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year later, the agencies issued a final determination that the adoption of the 2009
IECC for single family homes and ASHRAE Standard 90.1-2007 for multifamily
buildings would not negatively affect the availability or affordability of new
construction covered by Section 109 and that the updated codes should therefore take
effect. See Final Affordability Determination—Energy Efficiency Standards, 80 Fed.
Reg. 25,901 (May 6, 2015). This agency action is referred to herein as the “2015 Final
Determination.”
New editions of the IECC were thereafter published in 2015, 2018, and 2021,
and new editions of ASHRAE Standard 90.1 were published in 2016 and 2019. See,
e.g., Determination Regarding Energy Efficiency Improvements in the 2015
International Energy Conservation Code (IECC), 80 Fed. Reg. 33,250 (June 11, 2015);
Final Determination Regarding Energy Efficiency Improvements in the 2018
International Energy Conservation Code (IECC), 84 Fed. Reg. 67,435 (Dec. 10, 2019).
The agencies, however, took no action on these updates until 2023.
C. The 2024 Final Determination. In 2023, again citing Section 109(d),
HUD and USDA published a preliminary determination that “the 2021 IECC
[update] and [2019] AS[H]RAE [update] will not negatively affect the affordability
and availability of housing covered by” Section 109. Adoption of Energy Efficiency
Standards for New Construction of HUD- and USDA-Financed Housing: Preliminary
Determination and Solicitation of Comment, 88 Fed. Reg. 31,773 (May 18, 2023).
During the notice-and-comment period, several industry organizations criticized the
agencies’ analysis and explained that the cost of adopting these standards would
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severely limit affordable low-income housing. Docket No. 35, Ex. 57 (Comment Letter
from NAHB) (“[R]equiring the 2021 IECC and ASHRAE 90.1-2019 codes on virtually
all new construction supported by HUD and USDA undoubtedly will have adverse
consequences on the affordability and availability of new construction of single and
multifamily housing.”); Id., Ex. 56 (Comment Letter from Mortgage Bankers
Association) (“[T]his proposal could be devastating for millions of Americans looking
to buy or rent safe, decent, affordable housing.”); Id., Ex. 55 (Comment Letter from
national homebuilder) (“We have found the impact to affordability and increase in
cost of 2021 IECC compliance to be considerably more than the estimates . . . in your
preliminary determination.”).
Nevertheless, in 2024, HUD and USDA promulgated the regulation at issue
here—the 2024 Final Determination. 89 Fed. Reg. 33,112. Although the agencies
revised some of their cost estimates to account for the commenters, HUD and USDA
determined that the 2021 IECC and ASHRAE Standard 90.1-2019 will not negatively
affect the affordability and availability of housing covered by the statute. The
effective date of the Final Determination was May 28, 2024. Id. The initial deadline
for complying with the 2021 IECC and ASHRAE Standard 90.1-2019 was set between
November 2024 and November 2025 for most programs. Id. at Table 32.
D. This Lawsuit. Plaintiffs, a coalition of fifteen States and the National
Association of Home Builders, filed this action against HUD and USDA on January
2, 2025. Docket No. 1. Plaintiffs allege that the 2024 Final Determination violates
the APA, 5 U.S.C. §§ 701 et seq., and should therefore be set aside.
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Defendants filed a motion to dismiss on jurisdictional grounds, Docket No. 32,
which was shortly followed by a motion for summary judgment by the Plaintiffs.
Docket No. 35. Defendants filed a response and cross-motion for summary judgment.
Docket No 39.
Since the filing of this lawsuit, the agencies have extended the compliance
deadline in the Final Determination to December 31, 2026. See Final Determination:
Adoption of Energy Efficiency Standards for New Construction of HUD- and USDA-
Financed Housing; Extension of HUD Compliance Dates, 90 Fed. Reg. 11,622 (Mar.
10, 2025); Final Determination: Adoption of Energy Efficiency Standards for New
Construction of HUD- and USDA-Financed Housing; Additional Extension of HUD
Compliance Dates, 91 Fed. Reg. 4,933 (Feb. 3, 2026). HUD has explained that these
extensions are necessary in part to “provide additional time for the administration to
review questions of fact, law and policy supporting the Final Determination.” 90 Fed.
Reg. 11,622.
On July 7, 2025, HUD and USDA published a joint notice stating that they are
“considering reexamining the analysis in the Final Determination.” Docket No. 51-
1; Adoption of Energy Efficiency Standards for New Construction of HUD- and
USDA-Financed Housing; Notice for Comment, 90 Fed. Reg. 29,882, 29,885.
Nonetheless, according to a status report filed by Plaintiffs in January 2026, there is
no indication that the agencies are doing anything more than “considering
reexamining” the Final Determination. Docket No. 67.
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II.
The Court first addresses Defendants’ motion to dismiss, which argues that
the case is not ripe and should be dismissed under Federal Rule of Civil Procedure
12(b)(1) for lack of subject matter jurisdiction. Docket No. 32. As explained below,
the Court denies the motion.
A.
Rule 12(b)(1) requires dismissal of a complaint where “the court lacks the
statutory or constitutional power to adjudicate the case.” Walmart Inc. v. U.S. Dep’t
of Just., 21 F.4th 300, 307 (5th Cir. 2021) (citation omitted). “Article III of the United
States Constitution provides that federal courts have the power to decide only actual
cases or controversies.” Choice Inc. of Tex. v. Greenstein, 691 F.3d 710, 714–15 & n.20
(5th Cir. 2012) (citing U.S. Const. art. III, § 2). “The justiciability doctrines of
standing, mootness, political question, and ripeness all originate in Article III’s ‘case’
or ‘controversy’ language.” Id. at 715 (citation omitted).
The basic rationale for the ripeness doctrine “is to prevent the courts, through
avoidance of premature adjudication, from entangling themselves in abstract
disagreements over administrative policies, and also to protect the agencies from
judicial interference until an administrative decision has been formalized and its
effects felt in a concrete way by the challenging parties.” Contender Farms, L.L.P. v.
U.S. Dep’t of Agric., 779 F.3d 258, 267 (5th Cir. 2017) (quoting Abbott Labs. v.
Gardner, 387 U.S. 136, 148 (1967)).
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B.
Defendants argue that Plaintiffs’ claims are not ripe because the agencies have
extended the compliance deadlines while they “consider reexamining” the 2024 Final
Determination. Docket No. 32 at 5–9; Docket No. 51-1.
To determine whether a case is ripe for adjudication, courts evaluate (1) “the
fitness of the issues for judicial decision” and (2) “the hardship to the parties of
withholding court consideration.” Walmart, 21 F.4th at 311 (quoting Abbott Labs.,
387 U.S. at 149). Both prongs must be established for the action to be ripe. See
Huawei Techs. USA, Inc. v. Fed. Commc’ns Comm’n, 2 F.4th 421, 435 n.30 (5th Cir.
2021). On the “fit for decision” prong, “[a] challenge to administrative regulations is
fit for review if (1) the questions presented are purely legal ones, (2) the challenged
regulations constitute final agency action, and (3) further factual development would
not significantly advance the court’s ability to deal with the legal issues presented.”
Texas v. United States, 497 F.3d 491, 498 (5th. Cir. 2007) (internal quotations and
alterations omitted).
Plaintiffs have established all prongs here. Plaintiffs’ claims are fit for decision
because the claims raise purely legal issues and the Final Determination is “final
agency action”—points that Defendants do not dispute. Docket No. 32 at 7. Nor
would further factual development significantly advance the issues before the Court.
Defendants argue that “the agencies are still evaluating whether to revise or revoke
the [F]inal [D]etermination.” Id. But an agency may always revise or revoke final
agency action; that possibility does not make an APA challenge unripe. The agencies
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here, moreover, state that they are “considering reexamining” the Final
Determination, which is even less definitive than actually reexamining the rule.
Finally, the cases cited by Defendants are inapposite as they did not involve agency
action, much less final agency action like the Final Determination here. See, e.g.,
Walmart, 21 F.4th at 308 (holding that positions taken by the government in
settlement negotiations were not “rules” for APA purposes); Trump v. New York, 592
U.S. 125, 131 (2020) (reasoning that a presidential statement of intent to exclude
unlawful aliens from Census apportionment was not an “implement[ed]” action that
could give rise to justiciable claims).
Plaintiffs also satisfy the hardship prong. The Final Determination imposes
different and more stringent building requirements on new housing. Although the
agencies have extended some compliance deadlines until December 2026, buildings
are not constructed overnight and often have long lead times. Docket No. 33, Ex. 4
(Declaration of Jessica Lynch, Vice President, NAHB) ¶¶ 6–9. The average
completion time for a single-family house in 2023 was approximately 10.1 months;
for multi-family buildings, it was 19.9 months. Id. ¶ 7. Thus, any construction project
covered by HUD or USDA programs that starts today must plan to comply with the
standards adopted by the Final Determination. See id. ¶ 9. Further, Defendants did
not extend the compliance deadlines for certain state programs, and thus the Plaintiff
States are presently required to comply with the 2021 IECC. See 90 Fed. Reg. 11,622
(HUD Notice of deadline extension) (noting that compliance deadlines for States’
HOME and HTF programs remained set at November 28, 2024). In sum, the Final
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Determination has been formalized, and its effects have been felt in a concrete way
by the challenging parties. See Contender Farms, L.L.P., 779 F.3d at 267.
Accordingly, Defendants’ motion to dismiss on jurisdictional grounds is
DENIED.
III.
The parties cross-move for summary judgment on Plaintiffs’ four claims, each
of which seeks to set aside the Final Determination as unlawful under the APA.
Summary judgment is proper when the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that
there is no genuine issue of material fact and that the moving party is entitled to
judgment as a matter of law. FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S.
317, 323–25 (1986); Ragas v. Tenn. Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir.
1998).
The Court addresses Plaintiffs’ four counts in turn.
A.
Plaintiffs first assert that Section 109 is unconstitutional and thus the Final
Determination is “contrary to constitutional right, power, privilege, or immunity,”
5 U.S.C. § 706(2)(B). Docket No. 1, Count One. Plaintiffs primarily argue that
Section 109 violates “the private non-delegation doctrine” because it delegates to
private code bodies—the IECC and ASHRAE—the power to establish energy
efficiency standards. Docket No. 35 at 14–15. Plaintiffs also contend that Section
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109 violates the Spending Clause because the statutory spending conditions are
ambiguous. Id. at 16. Neither argument has merit.
1. The Constitution vests federal power in only three branches of
government—not in private entities unaccountable to the people. See, e.g., A.L.A.
Schecter Poultry Corp. v. United States, 295 U.S. 495, 537–38 (1935); Carter v. Carter
Coal Co., 298 U.S. 238, 310–11 (1936); National Horsemen’s Benevolent and Protective
Ass’n v. Black, 53 F.4th 869, 872–73 (5th Cir. 2022) (“Horsemen’s I”). Indeed, “[a]
cardinal constitutional principle is that federal power can be wielded only by the
federal government.” Horsemen’s I, 53 F.4th at 872. “Private entities may do so only
if they are subordinate to an agency.” Id. Thus, a statute may not give a private
entity the power to “formulate detailed rules on an array of topics” and then constrain
an agency’s power to reject or modify those rules. See id. at 872. “An agency does not
have meaningful oversight if it does not write the rules, cannot change them, and
cannot second-guess their substance.” Id. Such an arrangement violates “the settled
constitutional principle that forbids private entities from exercising unchecked
government power.” Id. at 873.1
1 Horsemen’s I addressed a statute requiring the Federal Trade Commission to adopt certain rules
proposed by the Horseracing Authority. Horsemen’s I, 53 F.4th at 872. After the Fifth Circuit issued
its decision in Horsemen’s I, Congress amended the statute to give the FTC the power to abrogate,
add to, or modify the Authority’s rules. Horsemen’s Benevolent & Protective Ass’n v. Black, 107 F.4th
415, 420 (5th Cir. 2024) (“Horsemen’s II”). In Horsemen’s II, the Fifth Circuit held that the amended
statute largely cured the nondelegation problem—except for a different provision that gave the
Horseracing Authority enforcement powers under the statute. Id. at 421. In June 2025, the
Supreme Court vacated the Fifth Circuit’s judgment in Horsemen’s II and remanded the case “for
further consideration in light of” Consumer’s Research. Horseracing Integrity & Safety Auth., Inc.
v. Nat’l Horsemen’s Benevolent & Protective Ass’n, 145 S. Ct. 2837 (2025). The case remains pending
at the Fifth Circuit.
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On the other hand, delegating power to a private entity may be permissible if
the entity is “broadly subordinate” to a federal agency. Fed. Commc’ns Comm’n v.
Consumers’ Rsch., 606 U.S. 656, 660 (2025); see also, e.g., Sunshine Anthracite Coal
Co. v. Adkins, 310 U.S. 381, 388, 399 (1940) (statute permitting boards of coal
companies to propose minimum coal prices to the National Bituminous Coal
Commission for “approv[al], disapprov[al], or modifi[cation]” was “unquestionably
valid” because the private boards “function[ed] subordinately to” the agency and were
subject to its “authority and surveillance.”).
In Consumers’ Research, the Supreme Court approved the appointment of a
private entity to administer a fund for the Federal Communications Commission
because the entity did not “make policy” and was required to “carry out all its tasks
‘consistent with’ the FCC’s rules, ‘orders, written directives, and other instructions.’”
606 U.S. at 693 (quoting 47 C.F.R. § 54.702(c)). In fact, the private entity in that case
“play[ed] an advisory role,” while the “Commission alone ha[d] decision-making
authority.” Id. Specifically, the private entity gathered data and estimated costs of
the fund and then shared those projections with the FCC. Id. That, according to the
Court, was the end of the entity’s role: the FCC had all subsequent and final
authority to review, revise, and approve the rules for contributing to the fund. Id. at
693–94. “The [FCC] is, throughout, the final authority . . . .” Id. In rejecting the
plaintiff’s nondelegation argument, the Court reasoned that “the Administrator’s
projections can have only the legal (or, indeed, practical) effect the Commission
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decides they should.” Id. at 694. “Not the Administrator, but the Commission,
endorses final projections . . . and formally promulgates them.” Id.
Applying that precedent here, the Court concludes that Section 109 does not
violate the nondelegation doctrine. Plaintiffs focus their argument on Section 109(d),
which requires that new construction comply with any revised IECC or ASHRAE
codes under certain circumstances. 42 U.S.C. § 12709(d). Plaintiffs contend that
Section 109(d) “incorporat[es] ever-changing efficiency standards set by private code
bodies” and violates “the private non-delegation doctrine.” Docket No. 35 at 12–16.
But Plaintiffs misread the statute. First, Section 109(d) does not automatically
“incorporate” new IECC and ASHRAE efficiency standards. Rather, the new
standards govern only if (1) HUD or USDA “mak[es] a determination that the revised
codes do not negatively affect the availability or affordability of [new housing],” and
(2) the Secretary of Energy “makes a determination . . . that the revised code or
standard would improve energy efficiency.” 42 U.S.C. § 12709(d). Thus, if the
agencies refuse to make these findings—as they did for many years—then the new
codes have no force or effect. Cf. Horsemen’s I, 53 F.4th at 882–84 (noting that the
private entity had “sweeping rulemaking power,” with the ability to establish,
enforce, and punish all entities involved in the horseracing industry and that the FTC
lacked the final say on what rules the entity promulgated); Carter Coal Co., 298 U.S.
at 310–11 (striking down a statute that allowed private entities to set wages and
hours for the rest of the industry). In this way, Section 109(d) is more like the statute
in Consumers’ Research, which provided that the private administrator’s “projections
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can have only the legal (or, indeed, practical) effect the Commission decides they
should.” 606 U.S. at 694. “Not the Administrator, but the [agency] endorses [the
proposal] . . . and formally promulgates [the rules].” Id.; see also id. at 695 (“It is
sufficient . . . that the private party’s recommendations . . . cannot go into effect
without an agency’s say-so . . . .” (citing Sunshine Anthracite Coal Co., 310 U.S. at 399
(emphases added)).
Second, nothing in Section 109(d) prohibits the agencies from adopting their
own efficiency standards—or modifying or revising the new codes or standards issued
by the IECC or ASHRAE. In fact, Section 109(a) requires the agencies to establish
their own energy efficiency standards that “meet or exceed” the 2006 IECC or the
ASHRAE Standard 90.1-2004. 42 U.S.C. § 12709(a). If the IECC or ASHRAE later
revises its code, then the agencies “shall . . . amend” their own standards “to meet or
exceed” the new codes. Id. § 12709(c). Naturally, improving on a given code update
before promulgating a new rule is a “modifi[cation],” Sunshine Anthracite Coal Co.,
310 U.S. at 388, or “revis[ion],” Consumers’ Research, 606 U.S. at 694. Thus, again,
Section 109 is similar to the statute upheld in Consumer’s Research, where the agency
retained the power to review, direct, and revise the private administrator’s fund
recommendations. 606 U.S. at 692–94; see also Sunshine Anthracite Coal Co., 310
U.S. at 388; cf. Horsemen’s I, 53 F.4th at 872 (holding that delegation was
unconstitutional where the agencies “[could] not write the rules, [could not] change
them, and [could not] second-guess their substance”).
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Accordingly, the Court concludes that Section 109 does not present a
nondelegation problem.
2. Plaintiffs also argue that Section 109 violates the Spending Clause.
Docket No. 35 at 16. The Court disagrees.
The Spending Clause grants Congress the power to “lay and collect Taxes,
Duties, Imposts and Excises, to pay the Debts and provide for the common Defence
and general Welfare of the United States.” U.S. Const. art. I, § 8, cl. 1. “Incident to
this power, Congress may attach conditions on the receipt of federal funds[.]” Texas
v. Yellen, 105 F.4th 755, 767 (5th Cir. 2024) (quoting South Dakota v. Dole, 483 U.S.
203, 206 (1987)). “If Congress intends to impose a condition on the grant of federal
moneys [to the States], it must do so unambiguously” to ensure that “the State
voluntarily and knowingly accepts the terms of the ‘contract.’” Pennhurst State Sch.
& Hosp. v. Halderman, 451 U.S. 1, 17 (1981). “Relying on regulations to present the
clear condition, therefore, is an acknowledgment that Congress’s condition was not
unambiguous, so that method of analysis would not meet the requirements of [Dole,
483 U.S. 203].” Tex. Educ. Agency v. U.S. Dep’t of Educ., 992 F.3d 350, 361 (5th Cir.
2021).
Plaintiffs’ argument on this point is brief and unclear. Plaintiffs recite a
hypothetical statute discussed in Texas v. Yellen, 105 F.4th at 771, and then assert
“that’s precisely what Section 109 does.” Docket No. 35 at 16. But the hypothetical
statute in Yellen prohibited states from using federal funding “to advance injustice,”
which the court explained was “hopelessly ambiguous.” 105 F.4th at 770. No such
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ambiguity exists here. Section 109 requires that new housing construction comply
with specific energy efficiency standards—either the standards established by the
agencies or the IECC and ASHRAE standards after the agencies make certain
findings. That is not “hopelessly ambiguous.”
Nor does the real statute addressed in Yellen support Plaintiffs. Yellen
involved a provision in the American Rescue Plan Act that broadly prohibited states
from using allotted funds to take any action “directly or indirectly” that would reduce
their net tax revenue. The Fifth Circuit found that this condition was invalid under
the Spending Clause primarily because states would be unable to know whether a
reduction was “indirect[].” 105 F.4th at 774. The court also reasoned that the
relevant provision violated the Spending Clause because it failed to set a standard by
which states could determine that they were in compliance with the “indirect[] offset”
requirement. Id. at 772.
Neither of those defects is present here. Section 109 specifically requires that
new housing comply with the energy efficiency standards adopted by the agencies or,
if the agencies fail to adopt such standards, by the 2006 IECC or ASHRAE Standard
90.1-2004. States may also be required to comply with updated codes if the agencies
make the proper findings. In all of these scenarios, the standards are clear and
specific—a far cry from the standards discussed in Yellen.
* * *
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Finding no constitutional problem with Section 109, the Court DENIES
Plaintiffs’ motion for summary judgment on Count I and GRANTS Defendants’ cross-
motion.2
B.
Counts II and IV allege that the Final Determination is inconsistent with
Section 109 and should therefore be set aside under the APA.
The APA states that courts should “hold unlawful and set aside agency action
. . . found to be . . . not in accordance with law, [or] in excess of statutory jurisdiction,
authority, or limitations . . . .” 5 U.S.C. §§ 706(2)(a), (c). An agency rule that is
inconsistent with the governing statute and that “rewrites clear statutory terms”
must be held “‘unlawful and set aside’ on this basis alone.” Tex. Med. Ass’n. v. U.S.
Dep’t of Health & Hum. Servs., 587 F. Supp. 3d 528, 543 (E.D. Tex.
2022) (quoting Util. Air Regul. Grp. v. EPA, 573 U.S. 302, 328 (2014)). It is a “core
administrative-law principle that an agency may not rewrite clear statutory terms to
suit its own sense of how the statute should operate.” Util. Air Regul. Grp., 573 U.S.
at 328.
In analyzing Section 109, the Court applies the “fundamental canon of
statutory construction” that words “should be interpreted as taking their ordinary
meaning at the time Congress enacted the statute.” New Prime Inc. v. Oliveira, 586
2 Defendants also argue that Count I is barred by the six-year statute of limitations in 28 U.S.C.
§ 2401)(a). See Docket No. 39 at 8. Because the Court finds that Count I fails as a matter of law, it
need not address this argument. See, e.g., Thomas v. First Fitness Int’l, Inc., No. 309-CV-324-L,
2010 WL 2671330, at *5 (N.D. Tex. June 30, 2010) (“[Because] these [alternative] arguments
constitute independent and adequate grounds warranting Defendant’s entitlement to judgment as
a matter of law, . . . the court therefore need not address Defendant’s statute of limitations
argument.”).
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U.S. 105, 113 (2019) (citation modified); Van Loon v. Dep’t of the Treasury, 122 F.4th
549, 563 (5th Cir. 2024) (“Where a statute leaves terms undefined, we accord those
terms their ‘ordinary, contemporary, common meaning.’” (citation omitted)); Loper
Bright Enters. v. Raimondo, 603 U.S. 369, 400 (2024) (explaining that “the whole
point of having written statutes” is that “every statute’s meaning is fixed at the time
of enactment” (citation omitted)); see also ANTONIN SCALIA & BRYAN A. GARNER,
READING LAW: THE INTERPRETATION OF LEGAL TEXTS 69–77 (2012) (“The ordinary-
meaning rule is the most fundamental semantic rule of interpretation.”). The Court,
moreover, must examine “the language and design of the statute as a whole.” E.g., K
Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291 (1988).
The Court considers each Count in turn.
1.
Count II alleges that Section 109(d) permits the agencies to adopt only one
update to the codes, which the agencies accomplished in the 2015 Final
Determination. Thus, according to Plaintiffs, the 2024 Final Determination is
contrary to the statute. The Court agrees.
Section 109(d) states in pertinent part:
If the Secretary of Housing and Urban Development and the Secretary
of Agriculture have not, within 1 year after the requirements of the 2006
IECC or the ASHRAE Standard 90.1-2004 are revised, amended the
standards or made a determination under subsection (c), all new
construction and rehabilitation of housing specified in subsection (a)
shall meet the requirements of the revised code or standard if [the
agencies determine that the revised codes do not negatively affect the
availability or affordability of new construction and would improve
energy efficiency].
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42 U.S.C. § 12709(d) (emphases added). The first part of Section 109(d) contemplates
that the 2006 IECC and ASHRAE Standard 90.1-2004 may be revised or amended.
And then the second part plainly states that new construction and rehabilitation shall
satisfy “the revised code or standard,” which is singular, not plural. Thus, a natural
reading of Section 109(d) is that only the first revision to the 2006 IECC and ASHRAE
Standard 90.1-2004 would govern. Indeed, this is the interpretation followed by the
agencies in 2014 when they adopted the first such revision—the 2009 IECC and
ASHRAE Standard 90.1-2007. See 80 Fed. Reg. 25,901 (determining that the first
revision to the 2006 IECC and ASHRAE Standard 90.1-2004 would not negatively
affect the affordability and availability of covered housing).
Other textual clues confirm this interpretation. For example, Section 109
originally authorized HUD to adopt standards based on “the most recent edition” of
the model energy codes. See Cranston-Gonzalez Act of 1990, 104 Stat. 4079, 4093
(“Such standards shall meet or exceed the provisions of the most recent edition of the
Model Energy Code of the Council of American Building Officials . . . .”). The current
version of Section 109, however, references specific code editions—the 2006 IECC and
the ASHRAE Standard 90.1-2004. Subsection (d) then states that the first revision
to these specific editions shall govern if the agencies have failed to follow the
procedures under subsections (b) or (c). If Congress had wanted the agencies to adopt
code updates on an ongoing basis, then it would have no reason to reference a
particular edition in the statute. See BedRoc Ltd. v. United States, 541 U.S. 176, 183
(2004) (“The preeminent canon of statutory interpretation requires [the court] to
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presume that [the] legislature says in a statute what it means and means in a statute
what it says there.” (quotation omitted)).
Another clue is found in Section 109(c). That provision requires the agencies
to amend their own standards established under subsection (a) if “the requirements
of the 2006 IECC or . . . ASHRAE Standard 90.1-2004 are revised at any time.” 42
U.S.C. § 12709(c) (emphasis added). The use of the phrase “at any time” plainly
includes all future editions of the codes. But subsection (d)—which governs here
because the agencies never established their own standards under (a)—lacks this
language. In its place is a clear textual limit to “the revised code or standard”
following the 2006 IECC or ASHRAE Standard 90.1-2004—that is, the 2009 IECC
and ASHRAE Standard 90.1-2007.
Defendants’ arguments to the contrary are unpersuasive. They start by
arguing that “Section 109 as a whole confirms that it allows HUD and USDA to
update their standards any time after the Code Bodies update their codes.” Docket
No. 39 at 17. That’s certainly true for Section 109(c), which includes the “at any time”
language. But everyone agrees that Section 109(d), not 109(c), applies here. And
Defendants provide no textual reason why Section 109(d) also allows for multiple
updates. Defendants argue that “there is no apparent reason why ‘at any time’ is in
subsection (c) but missing from subsection (d).” Docket No. 39 at 19. Courts, however,
should give effect to every word and every provision in a statute. See
SCALIA & GARNER, READING LAW: THE INTERPRETATION OF LEGAL TEXTS 174–79
(2012) (“[E]very word and every provision is to be given effect . . . .”); see also, e.g.,
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Loughrin v. United States, 573 U.S. 351, 358 (2014) (“[W]hen Congress includes
particular language in one section of a statute but omits it in another—let alone in
the very next provision—this Court presumes that Congress intended a difference in
meaning.” (citation modified)). And doing so here means that Section 109 allows for
multiple code updates only if the agencies establish their own standards under
Section 109(a) and act promptly by following the procedures set forth in Section
109(c).
Defendants also claim that Congress meant “to set a floor,” not a “ceiling,” by
including the 2006 IECC and ASHRAE Standard 90.1-2004 in the statute. Docket
No. 39 at 20. But the best reading of Section 109(d) is that the first revision to the
2006 IECC and ASHRAE Standard 90.1-2004 is both the floor and the ceiling when
the agencies fail to act under the statute’s other provisions. That’s not contrary to
the “statutory policy” of Section 109, as the agencies claim. Id. at 21. It’s the most
natural reading of the statutory text. This interpretation also prevents the agencies
from circumventing Section 109’s other provisions by using the more abbreviated
procedure in Section 109(d).
In sum, Section 109(d) permitted the agencies to adopt only the first revision
to the 2006 IECC and the ASHRAE Standard 90.1-2004, which occurred in the 2015
Final Determination, see 80 Fed. Reg. 25,901. Because the agencies lacked the
statutory authority to promulgate the 2024 Final Determination, the Court GRANTS
Plaintiffs’ motion for summary judgment on Count II and sets aside the Final
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Determination under 5 U.S.C. § 706(2)(C) on this basis. Defendants’ cross-motion for
summary judgment on Count II is DENIED.
2.
Count IV alleges that the Final Determination is contrary to law for an
additional reason—it would reduce the availability of covered housing in violation of
Section 109. Docket No. 1 at 28–29; Docket No. 35 at 20–22. Again, the Court agrees.
Section 109(d) states that covered housing will be subject to the revised code
or standard only if HUD and USDA “make a determination that the revised codes do
not negatively affect the availability or affordability of new construction of assisted
housing and single family and multifamily residential housing . . . subject to
mortgages insured under the National Housing Act . . . .” 42 U.S.C. § 12709(d). The
agencies have interpreted “availability” to mean “whether builders will make such
housing available to consumers at the higher code level; i.e., whether the higher cost
per unit as a result of complying with the revised code will impact whether that unit
is likely to be built or not.” 89 Fed. Reg. 33,175–76.
Before issuing the Final Determination here, the agencies conducted a
Regulatory Impact Analysis (“RIA”) to examine the new codes’ impact on the
availability of affordable housing. Docket No. 35, Ex. 59; Docket No. 38
(Administrative Record), AR-0072; 89 Fed. Reg. 33,114. The RIA determined that
the 2021 IECC would reduce the availability of new affordable-housing construction
by 1.5 percent. AR-0140. The RIA explained:
The current proposed update of IECC . . . requirements constitutes a
more expansive impact [than the 2009 update]. The per-unit cost is
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greater [under the 2021 IECC] than for the previous update [under the
2009 IECC]. For example, [the Pacific Northwest National Laboratory’s
(“PNNL”)] estimate of the upfront incremental cost of building to the
IECC 2021 from the IECC 2009 is approximately $5,500, ranging from
a low upfront incremental cost of $2,800 in Climate Zone 1 to a high of
$6,800 in Climate Zone 8 . . . . The geographic scope of the impact of the
. . . update is also more extensive. In 2015, construction in only 16 states
was affected. For [this] update, 43 states and the District of Columbia
are below the 2021 IECC.3
AR-0138; see also 89 Fed. Reg. 33,176. Due in part to this increase in incremental
cost, the RIA concluded that “the quantity [of new construction] would decline by 1.5
percent of the [pre-Final Determination] market activity.” AR-0140.
The agencies acknowledge this conclusion, as they must. But they repeatedly
claim it was “just one piece of evidence” they considered. Docket No. 39 at 23–24.
The agencies contend that they “also considered builder impacts, evidence from prior
code adoption, jurisdictional energy-code variability, and more.” Id. at 24. Their
argument is vague, conclusory, and difficult to follow. The Final Determination is
not much better. Although the Final Determination states that “there would be no
noticeable impact on the supply of housing covered by this notice,” 89 Fed. Reg.
33,176, it also concludes that “the approximately 2 percent increase in construction
cost would reduce the production of homes for FHA-insured borrowers by 1.5 percent,”
id. at 33,177. The rest of the analysis appears to be wishful thinking that the
“demand for energy-efficient homes” will surpass the higher cost and thereby
“counteract any adverse impacts on availability.” 89 Fed. Reg. 33,177.
3 The Final Determination revised these cost estimates to account for inflation. The average
incremental cost increase as of 2023 was even higher—$7,229. Docket No. 38 (Administrative
Record), AR-6987.
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The agencies also argue that the 1.5% decrease in availability was a “most
cautious estimate.” Docket No. 39 at 24. But it was the agencies’ only estimate. In
the Final Determination, the agencies also state that the 1.5% decrease represents a
“‘worst-case’ scenario” because the underlying data “does not account for any of the
positive effects of energy-efficiency.” 89 Fed. Reg. 33,177. Nowhere, however, do the
agencies explain how such effects are supposed to counteract the higher construction
costs and decreased availability of affordable housing. As one court explained in
addressing similar agency guesswork, “[a]bsent some qualification, presumptions
and speculations do little—if anything—to justify agency action.” Texas v. Biden, 646
F. Supp. 3d 753, 777 (N.D. Tex. 2022) (“By using irrelevant data, Defendants again
fail to articulate a rational connection between the facts found and the choice made.”
(internal quotations omitted)).
Because the Final Determination would decrease the availability of affordable
housing, it is contrary to Section 109(d). The Court thus GRANTS summary
judgment for Plaintiffs on Count IV and sets aside the Final Determination on this
additional basis. Defendants’ cross-motion for summary judgment on Count IV is
DENIED.
C.
Plaintiffs allege in Count III that the analysis in the Final Determination was
“unreasoned, arbitrary, and capricious.” Docket No. 35 at 22. As explained below,
the Court finds that Plaintiffs failed to carry their burden on this count.
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The APA requires courts to “hold unlawful and set aside agency action . . .
found to be (A) arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2)(A). The “arbitrary-and-capricious standard
ensures that an administrative agency ‘examine[d] the relevant data and
articulate[d] a satisfactory explanation for its action including a rational connection
between the facts found and the choice made.’” Food & Drug Admin. v. Wages &
White Lion Invs., L.L.C., 604 U.S. 542, 567 (2025) (quoting Motor Vehicle Mfrs. Assn.
of United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43
(1983) (alterations in original)).
To decide whether agency action is arbitrary and capricious, courts begin by
asking whether “an agency articulated a rational connection between the facts found
and the decision made.” ExxonMobil Pipeline Co. v. U.S. Dep’t of Transp., 867 F.3d
564, 571 (5th Cir. 2017) (citation omitted). The second question is whether the
agency’s reasoning “fails to account for relevant factors or evinces a clear error of
judgment.” Univ. of Tex. M.D. Anderson Cancer Cntr. v. U.S. Dep’t of Health & Hum.
Servs., 985 F.3d 472, 475 (5th Cir. 2021); see also Texas v. United States, 40 F.4th
205, 226 (5th Cir. 2022) (“[The] court must set aside any action premised on reasoning
that fails to account for relevant factors or evinces a clear error of judgment.”
(quotation omitted)). The scope of this review is “narrow,” and courts “must exercise
appropriate deference to agency decisionmaking and not substitute their own
judgment for that of the agency.” Wages & White Lion Invs., L.L.C., 604 U.S. at 567.
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Critically, “an agency cannot simply ignore an important aspect of the problem.” Ohio
v. Env’t Prot. Agency, 603 U.S. 279, 293 (2024) (internal quotations omitted).
Plaintiffs primarily complain that the agencies used the Pacific Northwest
National Laboratory’s (“PNNL”) model to determine whether the 2021 IECC would
negatively affect the availability or affordability of new construction. Docket No. 35
at 22–23. Plaintiffs contend that the agencies should have instead used a model
proposed by Plaintiff National Association of Home Builders (“NAHB”). Id. But the
agencies squarely addressed this issue in the Final Determination. 89 Fed. Reg.
33,133–34. According to the agencies, the PNNL model “was developed with a
methodology that underwent a rigorous public comment and peer review process
[and] has been used for cost-benefit analysis of the revised editions of the IECC and
ASHRAE since the 2006 IECC.” 89 Fed. Reg. 33,134. The model proposed by NAHB,
in contrast, was based on “independent, third-party studies that include additional
data and analysis but is not peer reviewed” and did not “follow a federally approved
methodology.” Id. Other than pointing out that the two models are different,
Plaintiffs fail to explain why the agencies’ decision to rely on the PNNL model failed
to account for relevant factors or evinced a clear error of judgment. See Texas v.
United States, 40 F.4th at 226.
The remainder of Plaintiffs’ argument is less than clear, but it appears to be
other ways of arguing that the agencies should have used NAHB’s model, not PNNL’s.
For example, Plaintiffs say that PNNL’s model assumed an overhead and profit
margin of 15%, but should have instead used a margin of 19%. Docket No. 35 at 26.
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As evidence, Plaintiffs cite NAHB’s model, which in turn cites a study prepared by
NAHB in 2019 that is not in the record. Docket No. 35 at 26. In any event, the
agencies addressed overhead and profit in the Final Determination, 89 Fed. Reg.
33,134–35, and explained in their brief that the PNNL model used 15% for overhead
and profit because it relied on a more extensive set of data than NAHB’s model,
Docket No. 39 at 27–28. Plaintiffs fail to demonstrate how this decision was clear
error.
Finally, Plaintiffs contend that PNNL’s model used a “simple, non-
representative box-style home” for modeling insulation costs when it should have
used the home style from NAHB’s model. Docket No. 35 at 27–29. The agencies’
articulated reason for relying on this shape—that it better represents the majority of
new residential building construction stock in the United States (RIA at 128)—is
reasonable and reasonably explained, which is all the APA requires. Docket No. 39
at 28; see Texas v. United States, 40 F.4th at 226.
In sum, Plaintiffs fail to show how the agencies’ decision to rely on the PNNL
model was arbitrary and capricious under the APA. Accordingly, the Court DENIES
Plaintiffs’ motion for summary judgment on Count III and GRANTS Defendants’
cross-motion.
IV.
The Court DENIES Defendants’ motion to dismiss (Docket No. 32).
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The Court GRANTS-in-part Plaintiffs’ motion for summary judgment (Docket
No. 35), enters judgment for Plaintiffs on on Counts II and IV, and SETS ASIDE
AND VACATES the 2024 Final Determination.
The Court GRANTS-in-part Defendants’ cross-motion for summary judgment
(Docket No. 39) and DISMISSES Counts I and III.
All other pending motions are DENIED as moot. All other relief not expressly
granted herein is hereby DENIED.
So ORDERED and SIGNED this day of
___________________________________
JEREMY D. KERNODLE
UNITED STATES DISTRICT JUDGE
5th	March, 2026.
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