State v. U.S. the Dep't of Labor

• Decision Date: 24 January 2018
• Docket Number: No. 2:13–cv–02069–KJM–DB,2:13–cv–02069–KJM–DB
• Citation: 306 F.Supp.3d 1180
• Parties: STATE of California, et al., Plaintiffs, v. UNITED STATES the DEPARTMENT OF LABOR, et al., Defendants.
• Court: U.S. District Court — Eastern District of California

306 F.Supp.3d 1180

STATE of California, et al., Plaintiffs,

v.UNITED STATES the DEPARTMENT OF LABOR, et al., Defendants.

No. 2:13–cv–02069–KJM–DB

United States District Court, E.D. California.

Signed January 24, 2018

Filed January 25, 2018

Natalie Ikhlassi, Thompson Coburn LLP, Los Angeles, CA, Stephen B. Higgins, PHV, Thompson Coburn LLP, St. Louis, MO, Kathleen E. Kraft, Pro Hac Vice, Thompson Coburn, LLP, Washington, DC, for Plaintiffs.

Ryan Bradley Parker, Susan Ullman, United States Department of Justice, Civil Division, Washington, DC, for Defendants.

ORDER

Kimberly J. Mueller, UNITED STATES DISTRICT JUDGE

The State of California ("State") has sought a federal grant for two state transit projects. The United States Department of Labor ("DOL") has refused to certify the State to receive the grant funds. The State argues this refusal of certification was arbitrary and capricious under the Administrative Procedure Act ("APA"). Although the court previously resolved the parties' cross motions for summary judgment, largely in the State's favor, one question remains: Whether DOL can properly base its refusal to certify the State to receive grant funds based on an intervening state law's changes to pension benefit provisions affecting certain employees that work for Monterey–Salinas Transit ("MST"). As explained below, the court grants judgment for the State on this remaining issue.

I. BACKGROUND

The parties dispute the adequacy of the statutory interpretation in which the DOL engaged to deny the State's request for funding under § 13(c)(1) of the Urban Mass Transportation Act of 1964, 49 U.S.C. § 5301(a) ("UMTA"). The court has provided an extensive background section in its summary judgment order, see Order Aug. 22, 2016, ECF No. 121 ("SJ Order"), at 2–10, and so summarizes only relevant background information here.

A. UMTA

Congress enacted UMTA in 1964 to revamp deteriorating transit systems throughout the nation. 49 U.S.C. § 5301(a). UMTA created a federal agency, now called the Federal Transit Administration ("FTA"), to disburse funds for large-scale urban rail projects: Transit systems apply for funds related to specific transit projects and the FTA grants funds, subject to certain conditions. Id. § 5301(b)(1)–(8). UMTA sparked a national shift towards public operation of mass transportation systems. See Jackson Transit Auth. v. Local Div. 1285, Amalgamated Transit Union , 457 U.S. 15, 17, 102 S.Ct. 2202, 72 L.Ed.2d 639 (1982) ; Kramer v. New Castle Area Transit Auth. , 677 F.2d 308, 310 (3d Cir. 1982) (UMTA was force behind "[t]he whole move away from private transit systems and into public systems" by providing "the financial support to allow the changeover to public transportation companies").

During the legislative process, transit labor unions raised concerns about UMTA's potential impact on transit employees' rights. The unions feared local governments would use the newfound federal funding to assume operation of transit entities, and states would either restrict or outright prohibit public employers from bargaining collectively with their employees. Indeed, the National Labor Relations Act, intended to safeguard collective bargaining rights, applied (and continues to apply) only to private employees. Against this backdrop, labor unions warned UMTA could eradicate employees' hard-earned and bargained-for labor rights, conditions and benefits.

To address this concern, Congress drafted § 13(c), which frames the dispute here. See 49 U.S.C. § 5333(b) ; see also Jackson Transit , 457 U.S. at 17, 102 S.Ct. 2202 ("To prevent federal funds from being used to destroy the collective-bargaining rights of organized workers, Congress included § 13(c) in the Act."). Before a local government agency receives federal funds for a particular transit system, § 13(c) requires that agency to make "arrangements" to protect the rights and employment status of its employees. Id. The DOL is charged with certifying that the arrangements between the government agency and the affected transit employees are "fair and equitable" and that they meet the following five statutory conditions: (1) Preserve the rights, benefits, and privileges transit employees have under existing collective bargaining agreements; (2) continue these employees' collective bargaining rights; (3) protect employees' positions from worsening after the federally funded project ends; (4) assure priority reemployment status should the employees lose their jobs; and (5) offer paid training or retraining programs. Id. § 5333(b)(1)–(2).

The DOL may refuse to certify a state agency if existing state laws threaten any of the five requirements. A denial of certification blocks the applicant from receiving funds. As relevant here, the DOL denied the State's request for funding for MST based on the first requirement, identified above, finding a particular state law changed, rather than preserved, certain employees' pension rights in violation of § 13(c)(1). See MST Decision, ECF No. 88–5, at 8.

B. MST's Collective Bargaining Agreement

MST is the consolidated transportation services agency for Monterey County, California. This order pertains only to MST's "classic employees": Employees hired after January 1, 2013. Since 1983, MST and the Amalgamated Transit Union ("ATU") have entered into collective bargaining agreements that protect MST employees' labor rights. See Administrative Record ("AR") 50, ECF No. 100. As relevant here, a particular ATU–MST agreement was in force when, in December 2012, the State applied for UMTA funding. AR 50–51 (listing effective dates of ATU's agreement with MST as October 1, 2010 through September 30, 2013). The existing ATU–MST agreement memorialized certain pension rights for MST's classic employees. As relevant here, the agreement defines how MST will calculate a pension using the employee's final salary and the years the employee worked; it also demarcates a 36–month period during which MST classic employees can purchase "airtime." AR 793–94, 829–31. Airtime is a time credit that adds fictitious years to the true years an employee has worked before retiring; airtime can be used to increase the calculation of an employee's pension. AR 794; see 26 U.S.C. § 415(n)(3)(C) (explaining how these "permissive service credits" are calculated); see also SJ Order at n.2.

C. California Law

The DOL refused to certify the State's receipt of funds to benefit MST in part because a state law passed in 2012, the California Public Employees Pension Reform Act ("PEPRA"), changed the airtime rights provision applicable to MST classic employees under the bargaining agreement in place at the time. PEPRA was touted as a "sweeping reform" that limited pension benefits for state employees, increased the retirement age for public employees, required state employees to pay for half of their pension costs, and stopped abusive pension practices. Press Release, Office of Gov. Edmund G. Brown, Jr. (Aug. 28, 2012).¹ This court has discussed PEPRA in more detail in three prior orders and incorporates those discussions by reference here. See SJ Order at 3; California v. U.S. Dep't of Labor , 76 F.Supp.3d 1125, 1130 (E.D. Cal. 2014) (" Remand Order "), order enforced sub nom , California v. U.S. Dep't of Labor , 155 F.Supp.3d 1089 (E.D. Cal. 2016) (" Enforcement Order ").

The provisions of PEPRA that matter here shortened the time during which MST classic employees could exercise their bargained-for right to purchase airtime, by nine months. See Cal. Gov't Code § 7522.46 (public employees may no longer purchase airtime in calculating their retirement benefits if calculation based on a percentage of his or her pre-retirement compensation). PEPRA defines airtime by reference to the federal Internal Revenue Code. See id. § 7522.46(a) (citing 26 U.S.C. § 415(n)(3)(C) ). Under PEPRA, applications for airtime credit were no longer accepted after January 1, 2013. The preexisting ATU–MST bargaining agreement, however, gave MST classic employees the right to buy airtime through September 2013. The DOL cites this change as evidence the State did not "preserve" MST classic employees' existing pension rights, as § 13(c)(1) requires.

D. Procedural History

Soon after PEPRA's passage, the State applied for federal funding under UMTA to benefit MST and one other state transit agency, Sacramento Regional Transit District ("SacRT"). SJ Order at 2. The DOL refused to certify the State's request for funding to benefit either agency, citing as the basis both §§ 13(c)(1) (requiring "preservation" of employees' bargained for rights) and 13(c)(2) (requiring "continuation" of these rights). See MST Decision at 8. The State successfully challenged the DOL's decisions under the APA in this court in 2013, and the court remanded the matter to the DOL for reconsideration. See Remand Order at 1089; Enforcement Order at 30. In 2015, the DOL on remand again refused to certify either agency. Again the State sought relief in this court.

In early 2016, the DOL and the State cross-moved for summary judgment on the DOL's § 13(c)(1) and 13(c)(2) certification denials as to both transit agencies. ECF No. 99; ECF No. 104. The court resolved the parties' dispute in favor of the State except with respect to the issue now before the court: The DOL's § 13(c)(1) analysis as to MST classic employees. SJ Order at 51. This issue has now been joined by the State's supplementation of its complaint to clarify that it also challenges the DOL's § 13(c)(1) certification denial as to MST's classic employees. See First Am. Supp. Compl. Id. ¶¶ 81, 109–111, ECF No. 122 (filed Aug. 29, 2016). The parties have briefed the issue, disputing the standard § 13(c)(1) imposes and whether PEPRA's airtime provision precludes satisfaction of that standard. See ECF Nos. 123, 124, 128, 129.

II. SUMMARY JUDGMENT: ADMINISTRATIVE REVIEW

When a plaintiff challenges a federal agency's actions under the APA, the district court does not identify and resolve...