Rhea Lana, Inc. v. Dep't of Labor

• Decision Date: 03 June 2016
• Docket Number: No. 15-5014,15-5014
• Citation: 824 F.3d 1023
• Parties: Rhea Lana, Inc. and Rhea Lana's Franchise Systems, Inc., Appellants v. Department of Labor, Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

824 F.3d 1023

Rhea Lana, Inc. and Rhea Lana's Franchise Systems, Inc., Appellants

v.Department of Labor, Appellee.

No. 15-5014

United States Court of Appeals, District of Columbia Circuit.

Argued November 2, 2015

Decided June 3, 2016

Stephen S. Schwartz argued the cause for appellants. With him on the briefs were Matthew J. MacLean, John F. Scalia, Washington, D.C., Keith Hudolin, Baltimore, MD, and Daniel Z. Epstein.

Sydney A. Foster, Attorney, U.S. Department of Justice, argued the cause for appellee. With her on the brief were Benjamin C. Mizer, Principal Deputy Assistant Attorney General, Vincent H. Cohen Jr., Acting U.S. Attorney, Mark B. Stern, Attorney, U.S. Department of Justice, and Dean A. Romhilt, Senior Attorney, U.S. Department of Labor.

Before: Garland,^* Chief Judge, Pillard, Circuit Judge, and Edwards, Senior Circuit Judge.

Pillard, Circuit Judge:

Plaintiff Rhea Lana's periodic tag sales of used children's toys, clothing, and furnishings—staffed principally by mothers and grandmothers as salespeople—are reminiscent of many a charitable fundraising event. The difference is that Rhea Lana runs and franchises its sales for a profit. The Department of Labor has for several decades read the Fair Labor Standards Act to prohibit for-profit, private-sector entities from using volunteer workers. Consistent with that view, the Department sent Rhea Lana a letter informing it that its failure to pay its salespeople violates the Act. The letter also bore a warning: the Act contains a penalty provision for repeated or willful violations and, now that Rhea Lana had official notice of its non-compliance, it would be subject to willfulness penalties for any further infractions. Rhea Lana sought pre-enforcement declaratory and injunctive relief against the Department's determination that it was out of compliance with the Act. The district court viewed the Department's letter as analogous to agency advice letters that this court has held to be unreviewable, non-final agency action, and so dismissed the suit.

We conclude that the Department's letter to Rhea Lana is final agency action because it is more than mere agency advice. By notifying Rhea Lana that the company was in violation of its wage-and-hour obligations, the letter rendered knowing any infraction in the face of such notice, and made Rhea Lana susceptible to willfulness penalties that would not otherwise apply. The letter thus transmitted legally operative information with a “legal consequence” sufficient to render the letter final. We therefore reverse the district court's dismissal.

I.

Plaintiffs Rhea Lana, Inc. and Rhea Lana's Franchise Systems, Inc. (collectively, Rhea Lana) operate, and franchise the opportunity to operate, semi-annual consignment sales of used children's toys, clothing, and related items. Rhea Lana leases space and handles logistical matters at the events, and consignors provide the items for sale. Consignors generally receive at least seventy percent of the proceeds from their items when sold, and may also help staff the sales. Consignors who work at Rhea Lana's sales—dubbed “consignor-volunteers”—receive no pay. However, they are allowed to buy items in advance of the general public and to help sell their own items and increase their profits by, for example, favorably displaying and promoting their goods.

In January 2013, the Wage and Hour Division of the Department of Labor (DOL or the Department) began investigating Rhea Lana's employment practices. At a meeting in May 2013, the agency advised Rhea Lana that DOL considered the company's consignor-volunteers to be employees under the Fair Labor Standards Act (FLSA), entitled to wages, including back pay. In August of that year, the agency reiterated its position in a pair of letters from Robert A. Darling, a district director of the Wage and Hour Division. The first letter, dated August 6, 2013, went directly to Rhea Lana's consignor-volunteers. It explained that those workers “might not have been paid as required by the law” and that, although the agency would “take no further action on [their] behalf,” the consignor-volunteers could bring suit under the FLSA to recover back pay. Letter from Robert A. Darling to Rhea Lana Consignor-Volunteers (Aug. 6, 2013), J.A. 21.

The second letter, sent to Rhea Lana on August 26, 2013, explained that “[t]he investigation [had] disclosed violations” of the FLSA's minimum-wage and overtime provisions. Letter from Robert A. Darling to Rhea Lana Rhiner (Aug. 26, 2013), J.A. 23. The letter noted that Rhea Lana had agreed to pay back wages to thirty-nine managers it had been treating as volunteers, but that the company “refuse[d] to comply” with respect to the consignor-volunteers. Id. In a paragraph of particular significance for this appeal, the letter continued:

We would like to direct your attention to section 16(e) of the FLSA and Regulations, Part 578. As you will note, section 16(e) provides for the assessment of a civil money penalty for any repeated or willful violations of [the FLSA's minimum-wage and overtime requirements], in an amount not to exceed $1,100 for each such violation. No penalty is being assessed as a result of this investigation. If at any time in the future your firm is found to have violated the monetary provisions of the FLSA, it will be subject to such penalties.

Id.

As DOL explained in its letter to consignor-volunteers, it had decided to conclude the matter by putting the company on notice and taking no “further action.” Letter from Robert A. Darling to Rhea Lana Consignor–Volunteers (Aug. 6, 2013), J.A. 21. Rhea Lana filed suit against DOL under the Administrative Procedure Act (APA), 5 U.S.C. § 706(2)(A), challenging the agency's determination that Rhea Lana's consignor-volunteers are employees under the FLSA. Rhea Lana sought a declaration that those workers are not employees and an injunction barring DOL from further investigations or enforcement proceedings flowing from the agency's determination.

The agency moved to dismiss, contending that Rhea Lana lacks standing and that the challenged letters are not final agency action subject to APA challenge. The district court held that the company has standing, but that the challenged agency action is non-final. The court reasoned that the letters here are indistinguishable from other statements of agency legal opinion that this court has found non-final, such that “D.C. Circuit precedent forecloses APA review of the DOL letters at issue.” Rhea Lana, Inc. v. U.S. Dep't of Labor , 74 F.Supp.3d 240, 245–46 (D.D.C. 2014) ; see id. at 244–45 (citing AT & T Co. v. EEOC , 270 F.3d 973, 976 (D.C. Cir. 2001) ; Indep. Equip. Dealers Ass'n v. EPA , 372 F.3d 420, 427 (D.C. Cir. 2004) ; Reliable Automatic Sprinkler Co. v. Consumer Prod. Safety Comm'n , 324 F.3d 726, 731 (D.C. Cir. 2003) ). Rhea Lana timely appealed.

II.

We review the district court's dismissal de novo . Reliable Automatic Sprinkler Co. , 324 F.3d at 731. Agency action is final, as it must be before we may review it here, 5 U.S.C. § 704, if it satisfies two conditions: “First, the action must mark the consummation of the agency's decisionmaking process.... And second, the action must be one by which rights or obligations have been determined, or from which legal consequences will flow.”

Bennett v. Spear , 520 U.S. 154, 177-78, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997) (internal quotation marks and citations omitted).

The parties have narrowed the question at issue in two ways. First, DOL has conceded the first finality requisite: the letters completed the agency's decisionmaking on the consignor-volunteers' status as employees. See Mem. in Supp. of Mot. to Dismiss 9 n.2, J.A. 65; Oral Arg. Rec. 31:50-32:04. Second, Rhea Lana has clarified that its finality contention is limited to the agency's August 26 letter to the company. See, e.g ., Rhea Lana Br. 3, 8-10; Oral Arg. Rec. 12:38-13:04. Accordingly, the sole question before us is whether DOL's August 26 letter (hereinafter, the Letter) satisfies the second finality requisite—that is, whether the Letter (a) determines rights or obligations or (b) creates legal consequences.

Rhea Lana says the Letter both determines obligations and creates legal consequences; either would suffice. The law in this area is hardly crisp. Our finality precedent lacks many “self-implementing, bright-line rule[s],” given the “pragmatic” and “flexible” nature of the inquiry as a whole. Nat'l Ass'n of Home Builders v. U.S. Army Corps of Eng'rs , 417 F.3d 1272, 1279 (D.C. Cir. 2005) (internal quotation marks omitted); see U.S. Army Corps of Eng'rs v. Hawkes Co ., ––– U.S. ––––, 136 S.Ct. 1807, 1815, 195 L.Ed.2d 77 (2016) (noting “the pragmatic approach we have long taken to finality” (internal quotation marks omitted)). And “rights or obligations” and “legal consequences” may have some analytic overlap. See, e.g ., Appalachian Power Co. v. EPA , 208 F.3d 1015, 1022–23 (D.C. Cir. 2000). We are assisted in this case by comparison of Rhea Lana's predicament to that of the plaintiffs in Sackett v. EPA , –––U.S. ––––, 132 S.Ct. 1367, 182 L.Ed.2d 367 (2012) —a case that, as we explain, provides helpful guideposts in discerning finality.

The company casts this case as the spitting image of Sackett, in which the Supreme Court found the challenged agency action to be final. The Court in Sackett considered the finality of an Environmental Protection Agency (EPA) administrative compliance order issued against the Sacketts, Idaho landowners who had, without seeking a dredge-and-fill permit under the Clean Water Act, filled part of their land with dirt and rock in preparation for building a house there. Id. at 1370. EPA responded with an order explaining that the Sacketts' property contained wetlands under federal law, and that the Sacketts' unpermitted filling activities violated the Act. Id. at 1370–71.

The Court concluded that the EPA order under review “ha[d] all of the hallmarks of APA finality.” Id. at 1371....