American Airlines, Inc. v. Herman

Decision Date17 May 1999
Docket NumberNo. 97-10895,97-10895
Parties9 A.D. Cases 516 AMERICAN AIRLINES, INC. Plaintiff-Appellee, v. Alexis M. HERMAN, Secretary of Labor, United States Department of Labor, Defendant-Appellant. Fifth Circuit
CourtU.S. Court of Appeals — Fifth Circuit

John Charles Fox, Craig Alan Selness, Fenwick & West, Palo Alto, CA, for Plaintiff-Appellee.

Linda Frances Thome, U.S. Department of Justice, Appellate Section, Civil Rights Division, Dennis J. Dimsey, U.S. Department of Justice, Washington, DC, for Defendant-Appellant.

Appeal from the United States District Court for the Northern District of Texas.

Before REYNALDO G. GARZA, POLITZ and DENNIS, Circuit Judges.

DENNIS, Circuit Judge:

The district court granted summary judgment declaring that the Secretary of the United States Department of Labor ("the Secretary") does not have authority under § 503 of the Rehabilitation Act of 1973 ("the Act") to enforce an agreement by American Airlines, Inc. ("American") not to discriminate against persons with disabilities as required by its contract with the government. Correlatively, the district court denied the Secretary's motion to dismiss American's declaratory judgment action because it failed to exhaust its administrative remedies under § 10(c) of the Administrative Procedures Act ("APA"). The Secretary appealed. We reverse the district court's judgments and dismiss American's suit for lack of jurisdiction.


In February 1989, the Office of Federal Contract Compliance Programs ("the OFCCP") of the Department of Labor ("the DOL") conducted a random compliance review of American's employment practices at its Nashville, Tennessee hub to evaluate American's compliance with its government contract under § 503 of the Rehabilitation Act of 1973, 29 U.S.C. § 793 (1988). Since its original enactment, § 503 has required covered federal contractors to "take affirmative action to employ and advance in employment" qualified disabled individuals. 29 U.S.C. § 793(a), Pub.L. No. 93-112, 87 Stat. 355, 393 (1973). The Secretary's 1974 regulations implementing § 503 require, inter alia, that every covered government contract include a clause providing that "[t]he contractor will not discriminate against any employee or applicant for employment because of physical or mental handicap 1 in regard to any position for which the employee or applicant is qualified. The contractor agrees to take affirmative action to employ, advance in employment and otherwise treat qualified handicapped individuals without discrimination based upon their physical or mental handicap...." 39 Fed.Reg. 20566, 20567 (1974).

Based on the OFCCP's compliance review, in November 1989, OFCCP issued a Notice of Violations alleging that American had unlawfully discriminated against 96 applicants for non-flight positions on the basis of their mental or physical disabilities.

Although none of the applicants filed a complaint, the OFCCP in April 1994 filed an administrative complaint against American, alleging that it had "failed or refused to comply with Section 503 and the Secretary of Labor's rules and regulations" by implementing certain hiring practices, and therefore had violated American's contractual obligations to the federal government. The OFCCP's administrative complaint prayed for an injunction declaring American ineligible for government contracts until it complied with the provisions of § 503, DOL regulations, and the government contract; and an order requiring American to provide relief to each of the 96 alleged victims of discrimination, including back pay, front pay, lost benefits, instatement, and retroactive seniority.

In the administrative proceeding, American moved for summary judgment on four grounds, urging that: (1) § 503 only requires affirmative action, and does not prohibit discrimination (the "no anti-discrimination authority" issue); (2) § 503 does not authorize back pay or other individual relief (the "back pay" issue); (3) § 503 does not authorize the OFCCP to conduct compliance reviews (the "compliance review" issue); and (4) the OFCCP's administrative action was untimely as being filed after the 180-day filing period (the "timely filed" issue).

In September 1995, the Administrative Law Judge ("ALJ"): (1) granted summary judgment to American on the "compliance review" issue, concluding that neither § 503 nor its implementing regulations authorize the OFCCP to initiate investigative and enforcement proceedings in the absence of a written complaint by a disabled applicant; (2) denied American's motion on the "no anti-discrimination authority" issue, concluding that the DOL's interpretation of the affirmative action requirement of § 503 as including an obligation not to discriminate was reasonable and within the grant of authority from Congress; (3) denied American's motion on the "back pay" issue, concluding that § 503 authorizes the OFCCP to seek relief for individual victims of discrimination; and (4) concluded that the "timely filed" issue was moot.

Based on the ALJ's conclusion that the OFCCP's administrative action against American was founded on an unauthorized compliance review, the ALJ recommended dismissal of the administrative complaint against American.

Both parties appealed from the ALJ's ruling to the then-highest authority within the DOL, the Assistant Secretary for Employment Standards ("Assistant Secretary"). 2 In April 1996, the Assistant Secretary issued a Decision and Remand Order, ruling against American and in favor of OFCCP on all four issues, concluding that: (1) the term "affirmative action to employ and advance in employment qualified individuals with handicaps" includes a duty not to discriminate against members of the class protected by § 503; (2) the Act and its implementing regulations authorize the DOL to investigate a contractor's compliance with § 503 in addition to investigating individual complaints; (3) § 503 authorizes the Secretary to enforce the Act to obtain individual relief for victims of discrimination, including back pay; (4) the regulations implementing the Act provide no time limits for filing formal administrative complaints by the Secretary arising out of compliance reviews. The Assistant Secretary remanded the case to the ALJ for further proceedings.

In September 1994, American filed this action in federal district court against Robert B. Reich, Secretary of the Department of Labor, seeking declaratory and injunctive relief pursuant to 28 U.S.C. §§ 2201 and 2202, 3 challenging the OFCCP's authority under § 503 to bring an administrative action against American based on its discrimination against disabled job applicants.

The DOL filed a motion for summary judgment seeking dismissal of American's complaint on the grounds that American had failed to exhaust its administrative remedies. The district court denied the motion.

In February 1997, the DOL filed a motion for summary judgment seeking an order declaring that § 503 authorizes the OFCCP to conduct random compliance reviews. Thereafter, American filed a motion for summary judgment declaring that § 503 does not authorize the OFCCP to seek individual remedies from American, such as back pay.

On April 8, 1997, the district court granted partial summary judgment to American, issuing a declaratory judgment ruling that "although § 503 does not authorize the DOL to prosecute American for disability discrimination, it does authorize the DOL to enforce American's contractual obligations." American Airlines, Inc. v. Metzler, 958 F.Supp. 273, 277 (N.D.Tex.1997). According to the district court, this section "neither requires affirmative action nor prohibits discrimination. Section 503 simply mandates that federal departments and agencies insert a contractual provision into certain federal contracts with outside contractors. It places the onus on the government, not on the private contractor." Id. at 276.

On July 24, 1997, the district court entered final judgment for American. American Airlines, Inc. v. Hermann, 971 F.Supp. 1096 (N.D.Tex.1997). The court decreed that: (1) § 503 does not authorize the DOL to seek individual remedies, including back pay and reinstatement, for alleged discrimination by American; (2) § 503 does not authorize the DOL to subject American to random compliance review for alleged discrimination against individuals with disabilities at American's Nashville facility; (3) the Assistant Secretary's April 1996 Decision and Remand Order in the ongoing administrative proceedings is set aside insofar as it conflicts with the court's July 24 or the April 8 orders; (4) the DOL is permanently enjoined from administratively prosecuting American; and (5) the issue of whether the administrative complaint was timely is rendered moot. The Secretary timely appealed.

A. Final Agency Action and Exhaustion of Administrative Remedies

The Secretary argues that the district court erred in denying the Secretary's motion for summary judgment based on American's failure to exhaust administrative remedies. Specifically, the Secretary argues that because only four of American's 24 affirmative defenses have been addressed in the administrative proceeding and because there has been no hearing and no adjudication of liability or remedy, there has been no "final agency action" under § 10(c) of the APA. Therefore, according to the Secretary, the district court, and hence, this court, lack subject matter jurisdiction.

While the Secretary argues that the Supreme Court's "finality factors" should govern our decision, 4 American argues that we should apply the "exhaustion doctrine" to decide this issue. 5

Courts often decline to review an agency action because it is not final, it is not ripe, or the petitioner did not exhaust available administrative remedies. In many circumstances, the three doctrines are difficult to distinguish, because the same considerations of timing and...

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