Afl-Cio v. Chao

• Decision Date: 22 January 2004
• Docket Number: No. CIV.A. 03-2464(GK).,CIV.A. 03-2464(GK).
• Citation: 298 F.Supp.2d 104
• Parties: AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS, Plaintiff, v. Elaine L. CHAO, Secretary of Labor, Defendant.
• Court: U.S. District Court — District of Columbia

298 F.Supp.2d 104

AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS, Plaintiff, v. Elaine L. CHAO, Secretary of Labor, Defendant.

No. CIV.A. 03-2464(GK).

United States District Court, District of Columbia.

January 22, 2004.

Robert M. Weinberg, Leon Dayan, Bredhoff & Kaiser, P.L.L.C., Washington, DC, for Plaintiff.

Jacqueline E. Coleman, U.S. Department of Justice, Washington, DC, for Defendant.

Raymond John LaJeunesse, Jr., National Right to Work Foundation, Springfield, VA, for Movant.

MEMORANDUM OPINION

KESSLER, District Judge.

Plaintiff, the American Federation of Labor and Congress of Industrial Organizations ("Plaintiff" or "AFL-CIO")¹, brings this action under the Administrative Procedure Act ("APA"), 5 U.S.C. § 701, et seq., for judicial review of the Final Rule entitled "Labor Organization Annual Financial Reports" ("Rule" or "Final Rule") issued by Defendant Elaine L. Chao, Secretary of Labor ("Secretary"), on October 9, 2003, 68 Fed.Reg. 58374. The Rule did not become binding until November 10, 2003, when it received final approval from the Office of Management and Budget ("OMB") pursuant to the Paperwork Reduction Act, 44 U.S.C. § 3501, et seq.² Plaintiff filed suit on November 26, 2003, alleging that the Secretary's action in issuing the Rule was "arbitrary and capricious." 5 U.S.C. § 706(2)(a).

This matter is before the Court for a decision on the merits.³ Upon consideration of the entire record herein, including Defendant's Motion for Reconsideration/Clarification of the Preliminary Injunction, and for the reasons stated below, Plaintiff's request for permanent relief setting aside the Rule and enjoining its implementation is granted in part and denied in part.

In summary, the Court concludes that the Secretary has the statutory authority to issue the Rule. The Court also concludes that the Rule is reasonable, adequately explained, and not arbitrary or capricious under the APA.

The Court finds, however, that the Secretary's imposition of a January 1, 2004 effective date for the Rule is arbitrary and capricious and in violation of the APA because it gives those unions that use a fiscal year beginning January 1 less than two months to develop new accounting systems, purchase new computers and software, and train their staff, in order to comply with the new Rule. As to those unions that use a fiscal year beginning on or after July 1, however, the Court finds that the rulemaking record does not support enjoining the Rule's effective date, provided that the Department makes available a fully tested version of its electronic reporting software at least ninety dates before that July date.

Based on these findings, the Court enjoins the Secretary from imposing the Final Rule until July 1, 2004, or ninety days after the Department makes available a fully tested version of its electronic reporting software, whichever is later. The Court recognizes, as did the Government in its Motion for Reconsideration/Clarification of the Preliminary Injunction, that those unions using a fiscal year that begins January 1 will not need, as a practical matter, to track the financial information required by the new Rule until January 1, 2005.

I. BACKGROUND

A. History of the Reporting Requirements

In 1959, Congress enacted the Labor-Management Reporting and Disclosure Act, 29 U.S.C. § 401 et seq., ("LMRDA"), requiring unions, among other things, to file annual reports with the Secretary of Labor disclosing detailed information about their financial transactions. Congress imposed this financial reporting requirement to protect the rights of union members, to guard against corruption, and to prevent "other failures to observe high standards of responsibility and ethical conduct" in the course of labor-management activities. See 29 U.S.C. § 401(a)-(c).

Specifically, Section 201(b) of the LMRDA requires unions covered by the statute to file annually with the Secretary of Labor a financial report which accurately discloses their "financial condition and operations" for the preceding fiscal year. 29 U.S.C. § 431(b). On January 20, 1960, James Mitchell, Secretary of Labor under President Dwight D. Eisenhower, promulgated the first regulations implementing § 201(b) of the LMRDA. See 25 Fed.Reg. 433 (1960); 29 C.F.R. § 403. Those regulations, with only minor modifications, have been in place for forty-three years.

The first implementing regulations required unions with $20,000 or more in annual receipts to submit their financial report on a "Form LM-2." Smaller unions were required to submit their report on a simpler "Form LM-3." In 1962, the Department of Labor ("Department") raised the filing threshold for the Form LM-2 to $30,000; in 1981, it raised it to $100,000; and in 1994, it raised it again to $200,000. See 67 Fed.Reg. 79280, 79293 (Dec. 27, 2002). Under the $200,000 filing threshold, 79 percent of all covered unions were eligible to file the simpler Form LM-3, and only 21 percent were required to file the Form LM-2.

B. The Requirements of the Final Rule

On December 27, 2002, the Secretary issued her Notice of Proposed Rulemaking ("NPRM") initiating the formal process that resulted in the Final Rule now in issue. See 67 Fed.Reg. 79280 (Dec. 27, 2002). On October 9, 2003, approximately nine months later, the Secretary promulgated the Final Rule. See 68 Fed.Reg. 58374 (Oct. 9, 2003). As already noted, the Rule did not become binding until November 10, 2003, when it received final approval from the OMB pursuant to the Paperwork Reduction Act, 44 U.S.C. § 3501, et seq. The Final Rule provides that it will become effective January 1, 2004, a little less than two months after OMB's approval.

In promulgating the Final Rule, the Secretary used a cost-benefit analysis to determine its appropriateness. See 68 Fed. Reg. at 58409 ("the real question is whether an increase in cost, once it is accurately measured, is justified by the increased benefits to union members"). However, in response to concerns expressed by commenters on the proposed rule, the Department modified numerous provisions including, inter alia, (1) raising the Form LM-2 filing threshold from $200,000 to $250,000 in total annual receipts,⁴ see id. at 58383 58429; (2) setting the dollar threshold for "major" receipts and disbursements at $5,000, see id. at 58388-90; (3) making the Rule effective a little less than two months after its publication rather than, as initially proposed, immediately after publication; and (4) limiting the Form T-1 requirement to those unions that are required to file the Form LM-2.⁵

The Final Rule will apply prospectively to financial reports filed by unions using a fiscal year that begins on or after January 1. See 68 Fed.Reg. at 58374. There are 4,778 unions (about 19 percent of all unions covered under the LMRDA) that will be required to file a Form LM-2 under the new Rule. Approximately two-thirds of these unions (3,185) have fiscal years that begin on January 1. See id. at 58423; Jardine Decl., ¶ 8. The first report containing the information required under the Rule for unions using a fiscal year beginning January 1 will be due on March 31, 2005. See id. at 58413. Unions using a fiscal year that begins on a date other than January 1 will have a concomitant amount of time to comply with the Rule. See id.

A union covered by the statute must file its Form T-1, or qualifying audit in lieu of the Form T-1, simultaneously with the union's filing of its Form LM-2. See id. at 58418. The Form T-1, however, covers the trust's, not the union's, fiscal year. At the time a union files its Form LM-2, the covered union must provide a Form T-1 for the trust's most recent fiscal year that ended during the union's reporting year. See id.

1. The Form LM-2

The Rule requires unions with total annual receipts of $250,000 or more to provide an itemized accounting of all receipts, disbursements, and accounts payable and receivable in excess of $5,000 on a Form LM-2 if the receipt, disbursement, or account payable or receivable falls into one of five designated "functional" categories.⁶ Unions with annual receipts of less than $250,000 are required to submit a Form LM-3. Those with annual receipts of less than $10,000 are required to submit a Form LM-4. Both the Form LM-3 and LM-4 require far less information than the Form LM-2.

Unions must file the Form LM-2 electronically. The Department is developing software that will enable each union to file its financial data electronically ("electronic reporting software"). This software, which has yet to be made available to the covered unions,⁷ will be offered without charge. See 68 Fed.Reg. at 58411.

2. The Form T-1

The Final Rule requires a union to file a Form T-1 if (1) it has an interest in a trust, as defined in the LMRDA § 3(1), 29 U.S.C. § 402(1);⁸ (2) the union and the trust each have annual receipts of $250,000 or more; and (3) the union makes a financial contribution to the trust, or a contribution is made on the union's behalf, of $10,000 or more. If a union's financial contribution to a trust, or a contribution made on the union's behalf, is less than $10,000 or the union has an interest in a trust that has annual receipts of less than $250,000, the union only has to report on the Form LM-2 the existence of the trust and the amount of the union's contribution or the contribution made on the union's behalf. See 68 Fed.Reg. at 58430.

Unions will not have to file a Form T-1 for organizations that meet the statutory definition of a trust if (1) the trust files a report pursuant to 26 U.S.C. § 527;⁹ (2) the trust files a report pursuant to the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq.; (3) the organization is a Political Action Committee ("PAC") and files publicly available reports with a Federal or state agency; or (4) an independent audit has been conducted in accordance with the standards...