Rodriguez v. United States

• Decision Date: 24 March 2017
• Docket Number: No. 15-2178,15-2178
• Parties: Rosa Carmina RODRIGUEZ; Alexis E. Agostini; Raymond U. Arroyo; Carl C. Christensen; Ernesto L. Cruz; Manuel Q. Cruz; Shirley Y.M. Cummins; Linda T. Kuailani; Roy Lynch; Rafael A. Martinez; Albert E. Miller; Julia Q. Norman; Hildamar Ortiz; Reginald Kenalio Puana; Ivan O. Puig; Cynthia Jean Romney; Victor L. Rosario; Celia A. Ruiz; Joel A. Tutein, Plaintiffs, Appellants, v. UNITED STATES of America; The United States Office of Personnel Management; Beth F. Cobert, Acting Director of the United States Office of Personnel Management, Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

852 F.3d 67

Rosa Carmina RODRIGUEZ; Alexis E. Agostini; Raymond U. Arroyo; Carl C. Christensen; Ernesto L. Cruz; Manuel Q. Cruz; Shirley Y.M. Cummins; Linda T. Kuailani; Roy Lynch; Rafael A. Martinez; Albert E. Miller; Julia Q. Norman; Hildamar Ortiz; Reginald Kenalio Puana; Ivan O. Puig; Cynthia Jean Romney; Victor L. Rosario; Celia A. Ruiz; Joel A. Tutein, Plaintiffs, Appellants,

v.UNITED STATES of America; The United States Office of Personnel Management; Beth F. Cobert, Acting Director of the United States Office of Personnel Management, Defendants, Appellees.

No. 15-2178

United States Court of Appeals, First Circuit.

March 24, 2017

Adam H. Charnes , with whom Christin J. Jones , Dallas, TX, Thurston H. Webb , Atlanta, GA, and Kilpatrick Townsend & Stockton LLP were on brief, for appellants.

Stephanie R. Marcus , Attorney, Appellate Staff, Civil Division, United States Department of Justice, with whom Benjamin C. Mizer , Principal Deputy Assistant Attorney General, Rosa E. Rodríguez–Vélez , United States Attorney, and Marleigh D. Dover , Attorney, Appellate Staff, Civil Division, United States Department of Justice, were on brief, for appellees.

Before Howard, Chief Judge, Dyk,^** and Thompson, Circuit Judges.

DYK, Circuit Judge.

Plaintiffs challenge the Office of Personnel Management's ("OPM") regulations that exclude cost-of-living allowances ("COLAs")¹ from the calculation of retirement and other benefits. These COLAs are received by federal employees working in non-foreign areas located outside the contiguous United States. Plaintiffs allege that these regulations are unlawfully discriminatory under Title VII of the Civil Rights Act of 1964, Pub L. No. 88–352, 78 Stat. 241, 253–66, and are arbitrary, capricious, and contrary to law under the Administrative Procedure Act ("APA"). The district court dismissed plaintiffs' complaint. We affirm.

I.

Although we conclude that in many respects the merits of plaintiffs' claims are not before us, we briefly outline the issues underlying the dispute. This case concerns the calculation of retirement and other benefits for federal employees working in non-foreign areas located outside the contiguous United States. These areas include at least Puerto Rico, the U.S. Virgin Islands, Guam, the Northern Mariana Islands, Hawaii, and Alaska. In addition to their normal salaries, federal employees working in these areas receive cost-of-living allowances, or COLAs, calculated based on "living costs substantially higher than in the District of Columbia." 5 U.S.C. § 5941(a)(1). Congress first provided for such payments (then called "additional compensation") in 1948, and Congress provided the President with authority to issue regulations governing the payments.²

Pursuant to that congressional authority, on September 16, 1948, President Truman issued Executive Order 10,000, 13 Fed. Reg. 5453. In the order, President Truman delegated authority to the United States Civil Service Commission ("CSC") (predecessor of OPM) to prescribe regulations. 13 Fed. Reg. at 5455. On December 30, 1948, the CSC promulgated the regulations at issue in this case. See Territorial Post Differentials and Territorial Cost-of-Living Allowances, 13 Fed. Reg. 8725 (1948).

The 1948 CSC regulations provided for COLA payments, but they stated that COLAs are not part of the "base used in computing" entitlements such as retirement benefits. 13 Fed. Reg. at 8727, § 350.6(f). This rule excluding COLA payments from basic pay for retirement purposes persists in OPM's regulations today. 5 C.F.R. § 591.239(b). The consequence, under the regulations, is that employees receiving COLA payments earn lower retirement annuities than they would earn were the COLA payments included in their basic pay. We refer to this exclusion of COLA from base pay as the "exclusionary rule."

Plaintiffs complain that the exclusionary rule is contrary to law because, plaintiffs assert, there is no basis for the exclusionary rule in either the statute or Executive Order 10,000. The government contends that the exclusionary rule is mandated by statute. The government explains that the statutory definition of "basic pay" for federal employees in the retirement laws explicitly excludes "allowances." See 5 U.S.C. § 8331(3) (" ‘basic pay’ ... does not include ... allowances" under the Civil Service Retirement System ("CSRS")); see also id. § 8401(4) (incorporating the CSRS definition of "basic pay" into the Federal Employees' Retirement System ("FERS")). The current statute governing COLA payments refers to those payments as "allowances." Id. § 5941(a)(1). Therefore, the government reasons, COLAs are allowances and must be excluded from basic pay. The government also notes that COLAs are exempt from federal income tax. See 26 U.S.C. § 912(2).

Plaintiffs do not agree that COLAs are "allowances" within the meaning of the retirement laws. Plaintiffs argue that when COLAs were established in 1948, Congress referred to them as "additional compensation" rather than "allowances." See 5 U.S.C. § 118h (1952). Plaintiffs contend that no interpretive significance should be attributed to the United States Code's 1966 recodification,³ when Congress in the COLA statute replaced the terminology "additional compensation" with the "allowances" terminology. See H.R. Rep. No. 89–901, at 117 (1965) ("The word ‘allowances' is substituted for ‘additional compensation’ as a more apt term and for consistency."). Plaintiffs argue that the 1966 recodification was not intended to introduce substantive changes and, thus, the COLA statute's mere change in terminology introducing the label "allowances" in 1966 cannot justify the exclusionary rule.

Plaintiffs further complain that the rule also unlawfully discriminates against COLA payment recipients, many of whom are minorities that make up significant populations in COLA areas. Plaintiffs contend that "today, federal employees in COLA areas are the only class of federal employees in the United States whose regular compensation for normal working hours in their place of permanent residence is not included in their retirement base." Plaintiffs' Br. 11–12.

II.

Plaintiffs are a group of 19 current and former federal employees working in the non-foreign COLA areas. Plaintiffs filed a class action complaint in the United States District Court for the District of Puerto Rico challenging the exclusionary rule on behalf of a putative class of similarly situated current and former employees and surviving spouses of such employees. Plaintiffs named the United States, OPM, and the Director of OPM (collectively, "the government") as defendants. The complaint, as later amended, seeks a declaratory judgment that the exclusionary rule is arbitrary, capricious, and contrary to law under the APA and that the rule unlawfully discriminates against protected minorities in COLA areas in violation of Title VII, 42 U.S.C. § 2000e–16. With respect to the discrimination claims, the complaint alleges both that the rule is the product of discriminatory intent ("disparate treatment" claim) and that it improperly and adversely impacts minorities ("disparate impact" claim).

On August 20, 2015, upon the government's motion, the district court dismissed plaintiffs' amended complaint pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6). The court first held that the disparate impact claim was barred by the safe harbor provision of Title VII, which provides that "it shall not be an unlawful employment practice for an employer to apply different standards of compensation ... to employees who work in different locations" absent an intention to discriminate because of protected status. 42 U.S.C. § 2000e–2(h). The court next determined that plaintiffs had failed to administratively exhaust their disparate treatment claim before OPM. Finally, the court held that the nondiscrimination claims were precluded by the Civil Service Reform Act of 1978 ("CSRA"), which required plaintiffs to pursue their claims at the Merit Systems Protection Board ("MSPB"), with appeal to the Federal Circuit.

Plaintiffs appeal. We have jurisdiction pursuant to 28 U.S.C. § 1291.

III.

We review a district court's dismissal for lack of subject matter jurisdiction and for failure to state a claim de novo. McCloskey v. Mueller , 446 F.3d 262, 266 (1st Cir. 2006). We "accept[ ] the plaintiffs' well-pleaded facts as true and indulg[e] all reasonable inferences to their behoof." Id.

There is no contention that plaintiffs have failed to administratively exhaust their disparate impact claim, as opposed to their other claims. The question is whether the district court correctly held that this claim is barred by the safe harbor provision of 42 U.S.C. § 2000e–2(h). Answering this question requires first determining whether § 2000e–2(h) is a definitional provision that encompasses disparate impact for both private employers and the federal government, or—as plaintiffs argue—an affirmative defense that only applies to private employers.

It is, thus, necessary to an understanding of the Title VII provisions applicable to the federal government to understand the provisions applicable to private employers—provisions that pre-date the federal employment provisions. The Supreme Court interpreted the Title VII provisions applicable to private employers to prohibit employment policies creating a disparate impact in Griggs v. Duke Power Co. , 401 U.S. 424, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971). In Griggs , the Court explained that "[t]he Act proscribes not only overt discrimination but also practices that are fair in form, but discriminatory in operation." Id. at 431, 91 S.Ct. 849. Under Title VII, a claim for disparate impact covers "practices that are not intended to discriminate but in fact have a disproportionately adverse effect on minorities." Ricci v. DeStefano , 557 U.S. 557, 577, 129 S.Ct. 2658, 174 L.Ed.2d 490 (2009).

However, not all employer actions that have a disparate impact are unlawful. Section 2000e–2(h)...