Soler v. G. & U., Inc., Nos. 789

• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
• Writing for the Court: Before OAKES and WINTER, Circuit Judges, and ZAMPANO; ZAMPANO; OAKES
• Citation: 833 F.2d 1104
• Parties: 28 Wage & Hour Cas. (BN 593, 56 USLW 2309, 107 Lab.Cas. P 34,995 Francisco SOLER, et al., Plaintiffs-Appellees, v. G. & U., INC., et al., Defendants-Appellants, and Secretary, United States Department of Labor, et al., Defendants-Appellants. ockets 86-6166, 86-6190.
• Docket Number: Nos. 789,D,790
• Decision Date: 24 November 1987

Page 1104

833 F.2d 1104 28 Wage & Hour Cas. (BN 593, 56 USLW 2309,
107 Lab.Cas. P 34,995 Francisco SOLER, et al., Plaintiffs-Appellees,
v.
G. & U., INC., et al., Defendants-Appellants,
and
Secretary, United States Department of Labor, et al.,
Defendants-Appellants. Nos. 789, 790, Dockets 86-6166, 86-6190. United States Court of Appeals,
Second Circuit. Argued March 2, 1987.
Decided Nov. 24, 1987.

Page 1105

Edward F. Bean, New York City (Donald S. Kruger, Judson K. Siebert, John W. Whittlesey, Keane & Beane, P.C., New York City, of counsel), for defendants-appellants.

Frederick M. Lawrence, New York City (Rudolph W. Giuliani, U.S. Atty. for the Southern District of New York, Steven E. Obus, Asst. U.S. Atty., on brief, George R. Salem, Sol. of Labor, Allen H. Feldman, Assoc. Sol. for Special Appellate and Supreme Court Litigation, Carol A. DeDeo, Deputy Assoc. Sol., Edward D. Sieger, U.S. Dept. of Labor, of counsel), for Federal defendants-appellants.

Thomas A. Harnett, Newburgh, N.Y. (Claudia A. Smith, Walter H. Reuhle, Farmworkers Legal Services of New York, Inc., Newburgh, N.Y., of counsel), for plaintiffs-appellees.

Jeffrey H. Kirby, New York Farm Bureau, Inc., Glenmont, N.Y., Michael J. Steintjes, American Farm Bureau Federation, Park Ridge, Ill., on brief (Lance D. Taylor, Mayer, Brown & Platt, Chicago, Ill., of counsel), as amicus-curiae.

Before OAKES and WINTER, Circuit Judges, and ZAMPANO, District Judge. ^*

ZAMPANO, District Judge:

The central issue raised on these appeals is whether the district court erred in setting aside as arbitrary and capricious the determination by the Department of Labor's Wage and Hour Administrator ("Administrator") that certain housing facilities furnished to migrant farm workers primarily benefited the workers and, therefore, could qualify in part as "wages" under Sec. 3(m) of the Fair Labor Standards Act of 1983 ("FLSA"), as amended, 29 U.S.C. Sec. 203(m) (hereinafter referred to as Sec. 3(m)). ¹

We conclude that the district court exceeded the scope of its review authority under the Administrative Procedure Act, 5 U.S.C. Sec. 551 et seq. ("APA"), that the Administrator's decision was not arbitrary and capricious, and that the case must be remanded to the district court for further proceedings. ²

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I. BACKGROUND

A. FACTS

From 1978 to 1984, the appellees were migrant farmworkers ("workers") who were employed, along with year-round laborers, to harvest crops grown on farms owned by six appellants in Orange County, New York. During the main growing season from May to September, the growers offered housing to those workers who preferred to live on the farms rather than seek living accommodations in nearby areas.

Prior to 1978, the resident housing was provided to workers without charge. However, after Congress amended the FLSA to extend the minimum wage provisions to include agricultural workers in 1978, the growers met with state and federal labor officials who concluded that it would be permissible under certain conditions to deduct the reasonable value of the housing facilities from the cash wages of each worker for whom lodging was provided. The growers thereafter generally deducted $.25 per hour from each on-site worker's pay.

In June 1978, the workers complained to the Department of Labor ("DOL") that the charges were unfair and, in July 1978, petitioned the Administrator to determine the fair value of the housing. Compliance officers from the Department commenced an investigation of the workers' claims ³ and, on July 25, 1980, the Administrator announced that an administrative hearing would be conducted to assess the appropriate amount for the housing deductions. In the meantime, the workers instituted suit in December 1978 in federal court challenging the validity of the housing charges, which action was stayed pending the outcome of the administrative proceedings. See 477 F.Supp. 102 (S.D.N.Y.1979).

B. THE ADMINISTRATIVE PROCEEDINGS

Between September 8, 1980 and October 6, 1981, at the request of the Administrator, an Administrative Law Judge ("ALJ") held twenty-nine days of hearings on the housing deduction issue. At the hearings, all the parties were represented by counsel, twenty-six witnesses, including real estate experts, gave over 6500 pages of testimony, and 200 exhibits were introduced. In a comprehensive fifty-five page memorandum, the ALJ concluded, inter alia, that: 1) the lodging primarily benefited the workers; 2) no deductions would be allowed for periods in which the growers were not in compliance with sanitary regulations applicable to migrant housing; and 3) the fair rental value for the various housing in question ranged between $7.00 and $22.00 per week, per unit.

The Administrator's subsequent decision, filed on February 9, 1983, adopted most of the ALJ's findings, ⁴ concurred with the ALJ that substantial evidence supported the determination that the housing was furnished primarily for the benefit of the workers, and that, for reasons not relevant to these appeals, the range of fair rental values should be adjusted to $2.37 and $24.79 per week, per unit.

C. THE DISTRICT COURT'S DECISION

Both the workers and the growers sought district court review of the Administrator's decision under the APA. While recognizing that the "scope of judicial review (under the APA) is narrow, and the court should not substitute its judgment for that of the agency," 615 F.Supp. at 740-41, the district court nevertheless concluded that the Administrator's decision should be set aside as "arbitrary and capricious"

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and "because the decision is not in accordance with the law." Id. at 741.

The district court supported summary judgment for the workers on both legal and factual grounds. First, it rejected the principle advanced by the Administrator that, under Sec. 3(m) of the FLSA, a presumption exists that housing facilities, like meals, are a basic necessity for human existence and ordinarily should be included in an employee's regular rate of pay. An exception to this presumption, according to the Administrator, would be in special circumstances where the facilities "are found by the Administrator to be primarily for the benefit or convenience of the employer," under 29 C.F.R. Sec. 531.3(d)(1). The district court characterized the administrator's position as "not consistent with the policy underlying the FLSA," 615 F.Supp. at 742 n. 13, and held that the controlling Regulation, 29 C.F.R. 531.3(d)(1), required that a balancing test be applied in all cases to determine whether the housing primarily benefitted the growers or the workers. Id. at 742. The failure to apply the requisite balancing test, in the district court's view, rendered the Administrator's decision arbitrary and capricious as a matter of law. Id. at 746.

Having established that a balancing of benefits standard was applicable to the housing issue, the district court then conducted its own review of the factual record, weighed the respective benefits of on-site housing to the workers and to the growers, and decided that on balance the only rational conclusion possible was that the housing primarily benefitted the growers. Id. The district court concluded that the growers improperly deducted housing costs from the wages of the workers, and consequently, granted various relief sought by the workers including back pay, liquidated damages, and attorneys' fees.

On these consolidated appeals, the growers and the Administrator contend that the district court exceeded the permissible scope of review of the Administrator's decision under the APA, that the housing deductions set by the Administrator were established in accordance with the FLSA and pertinent Regulations promulgated by the Administrator, and that, even assuming the prominent role of a balance of benefits test, substantial evidence warrants a finding that the housing was furnished for the primary benefit of the workers.

II. DISCUSSION

A. SCOPE OF REVIEW UNDER THE APA

It is settled law that under the APA a reviewing court may set aside an agency's decision only if it is found to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. Sec. 706(2)(A). A court may not substitute its judgment for that of the agency, Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 823, 28 L.Ed.2d 136 (1971), and, when a particular controversy requires an agency's reconciliation of conflicting and overlapping congressional policies, a court "should hesitate to disturb the administrative determination." Hudson Transit Lines, Inc. v. United States, 765 F.2d 329, 336 (2d Cir.1985).

A successful challenge to an agency's decision under the arbitrary and capricious standard must clearly demonstrate that the agency "relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem [or] offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise." Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2867, 77 L.Ed.2d 443 (1983). A reviewing court may neither weigh alternatives available to the agency and then determine which is the more reasonable, see County of Suffolk v. Secretary of Interior, 562 F.2d 1368, 1383 (2d Cir.1977), nor resolve conflicts in the testimony "unless on its face it is hopelessly incredible." NLRB v. Warrensburg Board & Paper Corp., 340 F.2d 920, 922 (2d Cir.1965).

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Moreover, particularly in view of the labyrinthine nature of the congressional and regulatory schemes for the administration of wage and hour legislation, "an agency's construction of its own regulation is entitled to substantial deference." Lyng v. Payne, 476 U.S. 926, ----, 106 S.Ct. 2333, 2341-42, 90 L.Ed.2d 921 ...