The opinion of the court was delivered by: GLADYS KESSLER, District Judge
Plaintiff, the American Federation of Labor and Congress of
Industrial Organizations ("Plaintiff" or "AFL-CIO")*fn1, 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.*fn2 Upon consideration of the Motion, Opposition, Reply, the
amicus curiae brief of the National Right to Work Legal Defense
Foundation,*fn3 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.*fn4
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 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
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.
Elsenhower, 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
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
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 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 ...