Afl-Cio v. Chao, No. CIV.A. 03-2464(GK).

CourtUnited States District Courts. United States District Court (Columbia)
Writing for the CourtKessler
Citation297 F.Supp.2d 155
Decision Date31 December 2003
Docket NumberNo. CIV.A. 03-2464(GK).
297 F.Supp.2d 155
Elaine L. CHAO, Secretary of Labor, Defendant.
No. CIV.A. 03-2464(GK).
United States District Court, District of Columbia.
December 31, 2003.

Page 156

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.


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 pursuant to the Paperwork Reduction Act, 44 U.S.C. § 3501, et seq.. 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 on Plaintiff's Motion for Preliminary Injunction.2 Upon consideration of the Motion, Opposition, Reply, the amicus curiae brief of the National Right to Work Legal Defense Foundation,3 the oral arguments presented December 30, 2003, and the entire record herein, and for the reasons stated below, Plaintiff's Motion for Preliminary Injunction is granted.

In summary, the Court concludes that Plaintiff will suffer irreparable harm if forced to start complying with the requirements of the new reporting Rule by January 1, 2004. The Department of Labor has allowed the unions covered by the statute less than two months to make the extensive and sophisticated accounting, computer, and employee training changes that are necessary in order to bring them into compliance with the Rule. A one-year postponement of the effective date of the new Rule will cause no harm to either the Department of Labor or to union members.4 Given the fact that the present regulations, which the Department of Labor has maintained in effect for more than 40 years, will continue in effect, there will

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be no discernable harm to the public interest. The Court will soon be issuing a final dispositive Opinion on the broader issues presented in Plaintiff's request for permanent injunctive and declaratory relief. It must be emphasized that those broader issues are not being decided at this time. Much of the background information presented herein will also be relevant to that final decision on the merits.


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 a financial report which accurately discloses their financial condition and operations for the preceding fiscal year. See 29 U.S.C. § 431(b). Under that provision, James Mitchell, Secretary of Labor under President Dwight D. Eisenhower, promulgated the first regulations implementing the LMRDA on January 20, 1960. 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 theirs 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 Rulemaking Process

1. The Notice of Proposed Rulemaking

On December 27, 2002, the Department issued a Notice of Proposed Rulemaking ("NPRM"), initiating the formal process that resulted in the Final Rule now in issue. See 67 Fed.Reg. 79280-414 (Dec. 27, 2002).

The NPRM described the increasing trend away from small, independent unions and toward larger unions that tend to resemble modern corporations in their structure and complexity. The NPRM noted that these large unions often

manage full-featured benefit plans for their members, maintain close business relationships with financial service providers such as insurance companies and investment firms, offer multiple compensation opportunities to their senior executives and officials, operate revenue-producing subsidiaries, conduct extensive government lobbying, and participate in foundations and charitable activities.

67 Fed.Reg. at 79280.

The Department determined that, despite these operational and structural changes in the nature of unions, the forms on which the unions reported financial

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transactions remained essentially unchanged and were a barrier to full and transparent reporting. See 67 Fed.Reg. at 79280. The Department noted that the forms allowed the reporting of "large expenditures for generalized purposes" without providing any detail. 67 Fed.Reg. at 79281. "Recent [F]orm LM-2 reports filed with the Department disclosed, for example, expenditures of $7,805,827 for `Civic Organizations,' and $3,927,968 for `Sundry Expenses,' and $7,863,527 for `Political Education.'" 67 Fed.Reg. at 79281.

The Department observed that "the current [Form LM-2] does not require the union to disclose the identity of the recipient of the funds, making it difficult to determine whether these amounts were actually spent for the described activities," and difficult for union members to know "whether or not their dues were spent appropriately." 67 Fed.Reg. at 79282. The Department also noted that Office of Labor Management Standards' ("OLMS") investigations of fraud and embezzlement revealed that the "broad aggregated categories on the existing forms made it possible to hide embezzlements, self-dealing, overspending and financial mismanagement." 67 Fed.Reg. at 79282.

The Department also found that similar problems surrounded "trust[s] in which a labor organization is interested," as defined in § 3(1) of the LMRDA, 67 Fed. Reg. at 79282. Specifically, the Department noted that unions have substantial dealings with their affiliated entities, and that if a union transfers funds to such an entity, "union members may have no way to determine whether the funds in question were actually spent for the benefit of members." 67 Fed.Reg. at 79282. The Department pointed out, for example, that "joint training funds have been used to pay union officials supplementary salaries or host extravagant parties for trustees." 67 Fed.Reg. at 79283.

The proposed rule mandated, inter alia, (1) that receipts, disbursements, and accounts payable and receivable in excess of a threshold amount be individually reported on the Form LM-2; (2) that all such expenditures be reported in new "functional" categories;5 (3) that unions estimate and report on the Form LM-2 the time each officer and member spends on activities corresponding to the functional categories; (4) that unions report the number of members in specific categories; (5) that unions report the assets, liabilities, receipts, and disbursements of all "significant trusts" in which they have an interest on the Form T-1; (6) that unions file the Form LM-2 electronically.

At the outset of the rulemaking process, the Secretary acknowledged that additional burdens would be imposed by the new reporting requirements. In weighing the burden that the changes would entail, she noted that she would rely primarily on data provided by affected parties. "Information regarding the burden imposed by making the proposed changes and the benefit to be gained is most likely to be obtained by proposing the changes for comment so that unions who file these reports, union members, and other groups that represent workers can express their views." See 67 Fed.Reg. at 79282.

2. Comments on the Proposed Rule

During the ninety-day comment period, the Department received over 35,000 comments. Although a majority of these comments were form letters, approximately 1,200 individualized comments, including a lengthy, substantive, and detailed

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empirical analysis from the AFL-CIO, were received from union members, unions, employers and trade organizations, public interest groups, accountants and accounting firms, academics, and members of Congress. A majority of the comments the Department received opposed the proposed reporting requirements, asserting that compliance would be overly burdensome. See Def.'s Opp'n at 6.

The AFL-CIO's study of the burdens of the proposed rule was prepared by economist Ruth Ruttenberg ("Ruttenberg Report"). See Pl.'s Ex. 3, Tab A. The Ruttenberg Report concluded that the Secretary's initial $14.7 million estimate of the economic burden that the proposed rule would place on reporting unions was too low. See id. at 4. It estimated, using median-per-union cost figures, that the total costs of implementing the new form LM-2 electronic filing system for AFL-CIO affiliates would be...

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1 practice notes
  • Saunders v. Hankerson, No. CIV.A.02-2536(EGS).
    • United States
    • United States District Courts. United States District Court (Columbia)
    • 8 Abril 2004
    ...injure the opposing party and (4) the public interest will be furthered by issuance of the injunction." AFL-CIO v. Chao, 297 F.Supp.2d 155, 161 (D.D.C.2003) (citing Davenport v. Int'l Brotherhood of Teamsters, 166 F.3d 356, 360 (D.C.Cir.1999)). Because it effectively disposes of plaint......
1 cases
  • Saunders v. Hankerson, CIV.A.02-2536(EGS).
    • United States
    • United States District Courts. United States District Court (Columbia)
    • 8 Abril 2004
    ...substantially injure the opposing party and (4) the public interest will be furthered by issuance of the injunction." AFL-CIO v. Chao, 297 F.Supp.2d 155, 161 (D.D.C.2003) (citing Davenport v. Int'l Brotherhood of Teamsters, 166 F.3d 356, 360 (D.C.Cir.1999)). Because it effectively disposes ......

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