United States District Court for the District of Columbia
January 22, 2004.
AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS, Plaintiff,
ELAINE L. CHAO, Secretary of Labor, Defendant
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
("OMB") pursuant to the Paperwork Reduction Act, 44 U.S.C. § 3501,
seq.,*fn2 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 for a decision on the merits.*fn3 Upon
consideration of the entire record herein, including Defendant's Motion
for Reconsideration/Clarification of the Preliminary Injunction, and for
the reasons stated below, Plaintiff's request for permanent relief
setting aside the Rule and enjoining its implementation is granted
in part and denied in part.
In summary, the Court concludes that the Secretary has the statutory
authority to issue the Rule. The Court also concludes that the Rule is
reasonable, adequately explained, and not arbitrary or capricious under
The Court finds, however, that the Secretary's imposition of a January
1, 2004 effective date for the Rule is arbitrary and capricious and in
violation of the APA because it gives those unions that use a fiscal year
beginning January 1 less than two months to develop new accounting
systems, purchase new computers
and software, and train their staff, in order to comply with the
new Rule. As to those unions that use a fiscal year beginning on or after
July 1, however, the Court finds that the rulemaking record does not
support enjoining the Rule's effective date, provided that the Department
makes available a fully tested version of its electronic reporting
software at least ninety dates before that July date.
Based on these findings, the Court enjoins the Secretary from imposing
the Final Rule until July 1, 2004, or ninety days after the Department
makes available a fully tested version of its electronic reporting
software, whichever is later. The Court recognizes, as did the Government
in its Motion for Reconsideration/Clarification of the Preliminary
Injunction, that those unions using a fiscal year that begins January 1
will not need, as a practical matter, to track the financial information
required by the new Rule until January 1, 2005.
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 of Labor a financial
report which accurately discloses their "financial condition and
operations" for the preceding fiscal year. 29 U.S.C. § 431(b). On
January 20, 1960, James Mitchell, Secretary of Labor under President
Dwight D. Eisenhower, promulgated the first regulations implementing
§ 201(b) of the LMRDA. 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 their report 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 LM-2.
B. The Requirements of the Final Rule
On December 27, 2002, the Secretary issued her Notice of Proposed
Rulemaking ("NPRM") initiating the formal process that resulted in the
Final Rule now in issue. See 67 Fed. Reg. 79280 (Dec. 27, 2002). On
October 9, 2003, approximately nine months later, the Secretary
promulgated the Final Rule. See 68 Fed. Reg. 58374 (Oct. 9, 2003). As
already noted, the Rule did not become binding until November 10, 2003,
when it received final approval from the OMB pursuant to the Paperwork
Reduction Act, 44 U.S.C. § 3501, et seq., The Final Rule provides
that it will become effective January 1, 2004, a little less than two
months after OMB's approval.
In promulgating the Final Rule, the Secretary used a cost-benefit
analysis to determine its appropriateness. See 68 Fed. Reg. at 58409
("the real question is whether an increase in cost, once it is accurately
measured, is justified by the increased benefits to union members").
However, in response to concerns expressed by commenters on the proposed
rule, the Department modified numerous provisions including, inter alia,
(1) raising the Form LM-2 filing threshold from $200,000 to $250,000 in
total annual receipts,*fn4 see id. at 58383, 58429; (2) setting the
dollar threshold for "major" receipts and disbursements at $5,000, see
at 58388-90; (3) making the Rule effective a little less than two
months after its publication rather than, as initially proposed,
immediately after publication; and (4) limiting the Form T-1 requirement
to those unions that are required to file the Form LM-2.*fn5
The Final Rule will apply prospectively to financial reports filed by
unions using a fiscal year that begins on or after January 1. See 68
Fed. Reg. at 58374. There are 4,778 unions (about 19 percent of all
unions covered under the LMRDA) that will be required to file a Form LM-2
under the new Rule. Approximately two-thirds of these unions (3,185) have
fiscal years that begin on January 1. See id. at 58423; Jardine Decl.,
¶ 8. The first report containing the information required under the
Rule for unions using a fiscal year beginning January 1 will be due on
March 31, 2005. See id. at 58413. Unions using a fiscal year that begins
on a date other than January 1 will have a concomitant amount of time to
comply with the Rule. See id.
A union covered by the statute must file its Form T-1, or qualifying
audit in lieu of the Form T-1, simultaneously with the union's filing of
its Form LM-2. See id. at 58418. The Form T-1, however, covers the
trust's, not the union's, fiscal year. At the time a union files its Form
LM-2, the covered union must provide a
Form T-1 for the trust's most recent fiscal year that ended during
the union's reporting year. See id.
1. The Form LM-2
The Rule requires unions with total annual receipts of $250,000 or more
to provide an itemized accounting of all receipts, disbursements, and
accounts payable and receivable in excess of $5,000 on a Form LM-2 if the
receipt, disbursement, or account payable or receivable falls into one of
five designated "functional" categories.*fn6 Unions with annual receipts
of less than $250,000 are required to submit a Form LM-3. Those with
annual receipts of less than $10,000 are required to submit a Form LM-4.
Both the Form LM-3 and LM-4 require far less information than the Form
Unions must file the Form LM-2 electronically. The Department is
developing software that will enable each union to file its financial
data electronically ("electronic reporting software"). This software,
which has yet to be made available to the covered
unions,*fn7 will be offered without charge. See 68 Fed. Reg. at 58411.
2. The Form T-1
The Final Rule requires a union to file a Form T-1 if (1) it has an
interest in a trust, as defined in the LMRDA § 3(1),
29 U.S.C. § 402 (1);*fn8 (2) the union and the trust each have
annual receipts of $250,000 or more; and (3) the union makes a financial
contribution to the trust, or a contribution is made on the union's
behalf, of $10,000 or more. If a union's financial contribution to a
trust, or a contribution made on the union's behalf, is less than $10,000
or the union has an interest in a trust that has annual receipts of less
than $250,000, the union only has to report on the Form LM-2 the
existence of the trust and the amount of the union's contribution or the
contribution made on the union's behalf. See 68 Fed. Reg. at 58430.
Unions will not have to file a Form T-1 for organizations that meet the
statutory definition of a trust if (1) the trust files a report pursuant
to 26 U.S.C. § 527;*fn9 (2) the trust files a report pursuant to the
requirements of the Employee Retirement Income Security Act of 1974
("ERISA"), 29 U.S.C. § 1001, et seq.; (3) the organization is a
Political Action Committee ("PAC") and files publicly available reports
with a Federal or state agency; or (4) an independent audit has been
conducted in accordance with the standards prescribed in the Final
Rule.*fn10 For the first three categories, the exception is complete,
i.e., no Form T-1 is required. For the fourth category, a union must
file the Form T-1, but can file the independent audit in lieu of
providing the financial information otherwise required by the Form
T-1. See 68 Fed. Reg. at 58413.
C. The Instant Challenge to the Final Rule
On November 26, 2003, the AFL-CIO filed the instant action seeking a
Preliminary Injunction postponing the effective date of
the Rule, as well as permanent relief setting aside the Rule and
enjoining its implementation. On December 31, 2003, the Court granted
Plaintiff's Motion for a Preliminary Injunction on the grounds that the
AFL-CIO was likely to prevail on the merits of its claim that the January
1, 2004 effective date set out in the Final Rule was arbitrary and
capricious. See AFL-CIO v. Chao, No. 03cv2464 (GK), December 31, 2003,
The AFL-CIO maintains that it is entitled to permanent relief setting
aside the Rule and enjoining its implementation on two grounds. First, it
claims that the Secretary lacks the statutory authority under §§
201(b) and 208 of the LMRDA to issue the Rule, and that she is not
authorized "to require labor organizations to report every receipt and
disbursement, in any amount." 68 Fed. Reg. at 58376. The AFL-CIO also
argues that § 208 of the statute does not authorize the Secretary to
require unions to report on the finances of trusts that the union does
Second, Plaintiff claims that the Secretary's action in issuing the
Rule is arbitrary and capricious because (1) she set a January 1, 2004
effective date, thus giving those unions that use a fiscal year beginning
January 1 a little less than two months to develop the new accounting
systems, purchase the new computer hardware and software, and train their
staff to comply with the new Rule; (2) she underestimated the increased
costs of compliance
associated with the Rule; and (3) she failed to adequately explain
her cost estimates.
II. STANDARD OF REVIEW
Under the APA, an agency's action may be set aside only if it is
"arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law." 5 U.S.C. § 706(2)(A). "The arbitrary and
capricious standard [of the APA] is a narrow standard of review."
Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416
The reviewing court "must consider whether the decision was based on a
consideration of the relevant factors and whether there has been a clear
error of judgment." Id. Because the court's role is merely to ensure that
the agency based its decision on relevant factors and was not a "clear
error of judgment," the court may not substitute its judgment for that of
the agency. Id. "It is particularly important to adhere to [this]
standard when [as here,] an agency has been called upon to weigh the
costs and benefits of alternative policies." Competitive Enter. Inst. v.
Nat'l Highway Traffic Safety Admin., 901 F.2d 107, 120 (B.C. Cir. 1990).
If the "agency's reasons and policy choices . . . conform to certain
minimal standards of rationality' . . . the [agency decision] is
reasonable and must be upheld." Small Refiner Lead Phase-Down Task Force
v. EPA, 705 F.2d 506, 521 (D.C. Cir. 1983) (internal citation omitted);
see Kisser v. Cisneros, 14 F.3d 615, 619 (B.C. Cir. 1994)
(noting that "[t]he court must determine whether the agency has
articulated a `rational connection between the facts found and the choice
made.'") (internal citation omitted). This standard presumes the validity
of agency action. See Ethyl Corp. v. EPA, 541 F.2d 1, 34 (D.C. Cir. 1976)
In order for agency action to survive arbitrary and capricious review
under the APA, the agency must adequately explain its result. Public
Citizen, Inc. v. FAA, 988 F.2d 186, 197 (D.C. Cir. 1993); Fed. Election
Comm'n v. Rose, 806 F.2d 1081, 1088 (B.C. Cir. 1986). See also Pension
Ben. Guar. Corp. v. LTV Corp., 496 U.S. 633, 654 (1990) (an agency must
"provide an explanation that will enable the court to evaluate the
agency's rationale at the time of the decision"); Motor Vehicle Mfrs.
Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (an
agency's explanation must minimally contain "`a rational connection
between the facts found and the choice made'") (internal citation
This does not mean that an agency's decision must be a model of
analytical precision to survive a challenge. The extent to which an
agency must explain its decision was described in City of Vernon, Cal.
v. FERC, 845 F.2d 1042, 1046 (B.C. Cir. 1988), where our Circuit stated:
The basis upon which an agency action is grounded must
be set forth with such clarity as to be
understandable. It will not do for a court to be
compelled to guess at the theory underlying the
agency's action; nor can a court be expected to chisel
that which must be precise from what the agency has
left vague and indecisive. In other
words, `We must know what a decision means before the
duty becomes ours to say whether it is right or
Id. at 1046 (citing SEC v. Chenery Corp., 332 U.S. 194, 196-97 (1947)
(internal citation omitted)).
The AFL-CIO's principal argument is that the Rule is unlawful because
it is predicated on an erroneous construction of §§ 201(b) and 208 of
the LMRDA. Since this case involves the question of the Secretary's
interpretation of provisions of the LMRDA, the Court proceeds according
to the familiar two-step inquiry of Chevron U.S.A., Inc. v. Natural
Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984).
Under the first step of Chevron, the reviewing court must ascertain the
plain meaning of the statute. To that end, a court "must first exhaust the
`traditional tools of statutory construction,' to determine whether
Congress has spoken to the precise question at issue." Natural Res. Def.
Council, Inc. v. Browner, 57 F.3d 1122, 1125 (B.C. Cir. 1995) (quoting
Chevron, 467 U.S. at 843 n.9). In particular, a court considers the text
of the particular provision under examination, its statutory context, and
its purpose. Consumer Electronics Ass'n v. FCC, 347 F.3d 291, 297-99
(D.C. Cir. 2003); Am. Bankers Ass'n v. Nat'l Credit Union Admin.,
271 F.3d 262, 265 (B.C. Cir. 2001); County of Los Angeles v. Shalala,
192 F.3d 1005, 1014 (B.C. Cir. 1999); Southern California Edison Co. v.
FERC, 116 F.3d 507, 515 (B.C. Cir. 1997).
If this search yields a clear result, then Congress has expressed its
intention as to the question, and deference is not appropriate. See
Qi-Zhuo v. Meissner, 70 F.3d 136, 140 (D.C. Cir. 1995) ("Where . . . the
plain language of the statute is clear, the court generally will not
inquire further into its meaning.").
If, however, "the statute is silent or ambiguous with respect to the
specific issue," Congress has not spoken clearly, and the court proceeds
to the second step of Chevron. Chevron, 467 U.S. at 843. "[T]he fact that
the provision can support two plausible interpretations renders it
ambiguous for purposes of Chevron analysis." AFL-CIO v. Fed. Election
Comm'n, 333 F.3d 168, 174 (D.C. Cir. 2003). At that stage, a permissible
agency interpretation of the statute merits judicial deference. Id.
Specifically, the issue is "(1) whether the statute unambiguously forbids
the Agency's interpretation, and, if not, (2) whether the interpretation
for other reasons, exceeds the bounds of the permissible." Barnhart v.
Walton, 535 U.S. 212, 218 (2002).
A. Section 201(b) of the LMRDA Authorizes the Secretary to Require
Plaintiff asserts that the plain meaning of § 201(b) of the LMRBA
prohibits the Secretary from requiring unions "to report every receipt and
disbursement, in any amount, and in any categories prescribed by the
Secretary." 68 Fed. Reg. at 58376. Specifically, Plaintiff maintains that
the Secretary's interpretation of the statute fails at Chevron step one
is contrary to (1) the text of § 201(b) of the LMRDA; (2) the
statute's legislative history; (3) the longstanding administrative
construction of § 201(b); and (4) § 201(c) of the statute.
1. The Text of § 201(b)
The first "traditional tool of statutory construction" is always
examination of the text of the statute. Section 201(b) provides in full:
Every labor organization shall file annually with the
Secretary a financial report signed by its president
and treasurer or corresponding principal officers
containing the following information in such detail as
may be necessary accurately to disclose its financial
condition and operations for its preceding fiscal
(1) assets and liabilities at the beginning and
end of the fiscal year;
(2) receipts of any kind and the sources thereof;
(3) salary, allowances, and other direct or indirect
disbursements (including reimbursed expenses) to
each officer and also to each employee who, during
such fiscal year, received more than $10,000 in the
aggregate from such labor organization and any other
labor organization affiliated with it or with which
it is affiliated, or which is affiliated with the
same national or international labor organization;
(4) direct and indirect loans made to any officer,
employee, or member, which aggregated more than $250
during the fiscal year, together with a statement of
the purpose, security, if any, and arrangements for
(5) direct and indirect loans to any business
enterprise, together with a statement of the
purpose, security, if any, and arrangements for
(6) other disbursements made by it including the
all in such categories as the Secretary may prescribe.
29 U.S.C. § 431 (b) (emphasis added).
The plain language of § 201(b) shows clearly that Congress gave
the Secretary broad authority to require the filing of financial reports.
It also shows that Congress delegated to the Secretary the exclusive
authority to determine the level of "detail as may be necessary" for
accurate disclosures. 29 U.S.C. § 431 (b). Thus, on its face, §§
201(b) vests the Secretary with the discretion to determine "the format
in which the information required by the statute must be provided, as
well as the detail in which the information must be reported." 68 Fed.
Reg. at 58376.
Plaintiff contends that the statutory terms "financial condition" and
"operations" are terms of art in the field of accounting and, in
accounting parlance, mean "balance sheet" and "income statement,"
respectively. It asserts that, in the field of accounting, both a balance
sheet and an income statement "are documents that are characterized by
the aggregation of the information being reported into appropriate
homogenous categories and not by lengthy itemized lists of numerous
individual receipts, disbursements, assets, or liabilities." Pl.'s Mot.,
at 12. It argues that, since Congress has "deliberately" chosen to invoke
these terms of art, § 201(b) "cannot plausibly be construed to
denote itemized disclosure of the entity's ordinary assets, liabilities,
receipts, or disbursements." Id. at 13.
Instead, Plaintiff claims that the LMRDA authorizes the Secretary to
develop and require the filing of only one kind of financial report:
an annual report of the type regularly prepared by
corporations and nonprofit entities that consists of a
statement of assets and liabilities aggregated into
categories (in the nature of a balance sheet) and a
statement of receipts and disbursements aggregated
into categories (in the nature of an income statement)
with the Secretary to prescribe the
Id. at 8. Plaintiff asserts that the only matters as to which the statute
requires additional disclosure are found in subsections (3), (4), and (5)
of § 201(b).
Plaintiff's emphasis on two discrete phrases in § 201(b),
"financial condition" and "operations," is unpersuasive. Section 201(b)
does not require unions to file statements of "financial condition and
operations." Rather, it requires unions to file "a financial report" which
contains "information in such detail as may be necessary accurately to
disclose its financial condition and operations for its preceding fiscal
year." 29 U.S.C. § 431 (b). The phrase "financial condition and
operations" does not modify the term "financial report"; it pertains to
the word "information." It establishes a baseline of detail that a union
must disclose, at a minimum, about "the following information"
i.e., the items listed in subsections (1)-(6) of § 201(b). Moreover,
Plaintiff has cited no legislative history whatsoever to support its
claim that Congress intended these two phrases to have specialized
Thus, given the plain language of § 201(b), the AFL-CIO's assertion
that "financial condition" and "operations" are accounting terms of art
which prohibit itemized disclosure is irrelevant because the statute
requires neither a statement of "financial condition" nor a statement of
"operations." Rather, it requires unions to file a "financial report,"
and that term clearly encompasses itemized disclosure.*fn11
Moreover, "the Supreme Court has cautioned lower courts to be
especially leery of interpreting the LMRDA based on uncertain inferences
from word-by-word parsing of the statute." Mallick v. Int'l Bhd. of
Electrical Workers, 749 F.2d 771, 776 (D.C. Cir. 1984) ("Mallick I")
(citing to United Steelworkers v. Sadlowski, 457 U.S. 102, 111 (1982)).
Instead, the Supreme Court has instructed lower courts to "look to the
objectives Congress sought to achieve, and avoid placing great emphasis
upon close construction of the words." Sadlowski, 457 U.S. at 111. See
Smith v. McCarthy, 723 F. Supp. 173, 174-75 (D.D.C. 1989) (citing
Sadlowski for the same proposition). Given that the legislative history
of the LMRDA reveals "a widespread congressional concern for disclosure
of union information to the rank and file in order
to prevent autocratic rule," McCarthy, 723 F. Supp. at 175, Plaintiff's
textual analysis of § 201(b) is unpersuasive.
The Court turns now to examine that legislative history.
2. Congressional Purpose
The AFL-CIO claims that the legislative history of the LMRDA and its
predecessor the Taft-Hartley Act, as well as the longstanding
administrative construction of § 201(b), support its position that
the statute prohibits the Secretary from requiring itemized disclosure.
The LMRDA was enacted after lengthy congressional investigations by the
Senate Select Committee on Improper Activities in the Labor or Management
Field ("McClellan Committee") revealed that many union officials were
running their unions "as private fiefdoms" without regard to member
interests. Mallick I, 749 F.2d at 776. See Finnegan v. Leu, 456 U.S. 431,
435 (1982) (noting that the LMRDA was "the product of congressional
concern with widespread abuses of power by union leadership"). Congress
passed the LMRDA because it believed that "the exposure to public scrutiny
of all vital information concerning the operation of a trade union will
help deter repetition of the financial abuses disclosed by the McClellan
committee." Senate Comm. on Labor and Public Welfare, Labor-Management
Reporting and Disclosure Act of 1959, S.Rep. No. 86-187, at 9, reprinted
in 1 NLRB, Legislative
History of the Labor-Management Reporting and Disclosure Act of 1959, at
405 (1959) ("NLRB LMRDA History").
In Mallick I, this Circuit noted the significance of the following
general principles, articulated in the House Report accompanying the bill
that was eventually enacted as the LMRDA, in interpreting and construing
the statute and its subsections:
The members of a labor organization are the real
owners of the money and property of such organizations
and are entitled to a full accounting of all
transactions involving such money and property.
Because union funds belong to the members they should
be expended only in furtherance of their common
interest. A union treasury should not be managed as
though it were the private property of the union
officers, however well intentioned such officers might
be, but as a fund governed by fiduciary standards. .
. .It is the purpose of this bill to insure that full
information concerning the financial and internal
administrative practices and procedures of labor
organizations shall be, in the first instance,
available to the members of such organizations.
Mallick I, 749 F.2d at 779-80 (citing House Comm. on Education and
Labor, Labor-Management Reporting and Disclosure Act of 1959, H.R.Rep.
No. 86-741, at 7, reprinted in NLRB LMRDA History, at 765-66.
The legislative history of the LMRDA makes clear that Congress1 goal in
passing the statute was to root out and expose corruption in unions and
to promote accountable financial stewardship. Full disclosure of detailed
information about the financial transactions ordered by union officials
is a necessity for achieving that goal. "nly full disclosure will
enable the persons whose rights are affected, the public and the
Government[,] to determine whether [such] arrangements or activities are
justifiable, ethical, and legal." NLRB LMRDA History, at 401.
Accordingly, where the legislative purpose of the LMRDA reinforces the
plain language of § 201(b), it is clear that Congress vested the
Secretary with the authority to require itemized disclosure.
In further support of its position, Plaintiff argues that the statute
was intended simply to incorporate the financial disclosure requirements
of the Taft-Hartley Act.*fn12 As discussed above, however, the LMRDA was
enacted after a lengthy congressional investigation disclosed serious
instances of corruption in labor unions. See Mallick I, 749 F.2d at 776.
Clearly, then, far from incorporating the provisions of the then-existing
Taft-Harley Act which had proved ineffective in stopping union
corruption, Congress intended to effect substantial changes by
significantly strengthening the existing financial reporting rules for
unions. Thus, given the LMRDA's legislative history, Plaintiff's
contention that the statute simply incorporated the Tart-Harley Act
disclosure requirements cannot be credited.
Finally, Plaintiff argues that the Final Rule is unauthorized because
it differs from the longstanding administrative construction of §
201(b). It is well established, however, that "changed circumstances may
justify the revision of regulatory
standards over time." Farmer's Credit Cent. Exch. v. Fed. Energy Reg.
Comm'n, 734 F.2d 1486, 1500 (B.C. Cir. 1984). See People of State of
California v. Fed. Communications Comm'n, 905 F.2d 1217, 1230 (9th Cir.
1990) (recognizing that an agency is "obligated to reevaluate its
policies when circumstances affecting its rulemaking proceedings
change"). This is especially so where, as here, the rulemaking record
substantially documents the Secretary's reasons in support of the
particular changes finally adopted. See infra II.C.1 & 2. See also
Nat'l Classification Comm. v. U.S., 779 F.2d 687, 696 (B.C. Cir. 1985)
("It is well settled that an agency may depart from past policies or
practices if the agency also provides a reasoned explanation for its
actions."). Thus, Plaintiff's argument that the Final Rule is unlawful
simply because the financial disclosure rules for unions have remained
largely unchanged since 1959 is unpersuasive.
3. Statutory Context
The AFL-CIO claims that the Secretary's interpretation of § 201(b)
conflicts with § 201(c), 29 U.S.C. § 431 (c), which governs
access by union members to their union's "books, records, and accounts."
Section 201(c) provides that any union required to submit an annual
financial report must "make available the information required to be
contained in such report to all of its members . . . to permit such
member for just cause to examine any books, records, and accounts
necessary to verify such report."
29 U.S.C. § 431 (c). Plaintiff argues that, when § 201(b)
and § 201(c) are read together, the Secretary's interpretation of
subsection (b) is "irrational" because it gives her the authority to
require the disclosure of financial information "to the general public
that even a union member cannot obtain absent a showing of `just cause.'"
Pl.'s Mot., at 22.
Plaintiff's argument is unconvincing because, as the Secretary points
out in the Final Rule, while the revised Form LM-2 calls for more detail
than the previous form, it does not require disclosure of the underlying
records necessary to verify the report. See 68 Fed. Reg. 58377. The
Secretary explains that the `just cause' requirement of § 201(c) has
not changed simply because she "exercised her authority to determine that
more detailed financial information should be reported on a Form LM-2
than previously." Id. Accordingly, Plaintiff's claim that the Secretary's
interpretation of § 201(b) undercuts § 201(c) must be rejected.
Moreover, our Circuit has adopted a broad enough reading of the §
201(c) standard that the Secretary's interpretation of § 201(b) does
not undercut § 201(c). Our Court of Appeals has held that:
a union member has `just cause' to examine union
records relating to `a sudden, apparently
significant, and unexplained change in an item on his
union's LM-2 reports,' unless the union can
demonstrate that the disclosure of this information
will cause the union a `genuine harm' that `outweighs
the strong policy favoring access for union members
who have otherwise satisfied the statutory requirement
Mallick v. Int'l Bhd. of Electrical Workers, 814 F.2d 674, (D.C. Cir.
1987) ("Mallick II") (citing Mallick I, 749 F.2d at 781).*fn13 In
support of its broad reading of § 201(c), this Circuit noted that
"[i]n our view, it would be strange if subsection 201(c)
provision evincing special concern with the disclosure of financial
information were read as narrowly limiting the general fiduciary
principles that govern other aspects of the financial relationship between
union officials and union members." Mallick I, 749 F.2d at 780-81. It
also noted that cases interpreting the `just cause' standard "have
generally rejected a cramped literalism." Id. at 781.*fn14 Thus, given
the relatively broad reading of the "just cause" standard articulated in
Mallick I and
then affirmed in Mallick II, Plaintiff's claim that the Secretary's
interpretation of § 201(b) conflicts with § 201(c) lacks merit.
B. Section 208 of the LMRDA Authorizes the Secretary to Require Unions
to Report on the Finances of Independent Trusts
The Secretary cites to § 208 of the LMRDA as the statutory
provision authorizing her to require the Form T-1. Section 208 provides
that the Secretary may, in addition to issuing rules and regulations
"prescribing the form and publication of reports required to be filed
under this subchapter," issue "such other reasonable rules and
regulations (including rules prescribing reports concerning trusts in
which a labor organization is interested) as [s]he may find necessary to
prevent the circumvention or evasion of such reporting requirements."
29 U.S.C. § 438. As already noted, a "trust in which a labor
organization is interested" is defined in LMRDA § 3(1) as a
trust or other fund or organization (1) which was
created or established by a labor organization, or one
or more of the trustees or one or more members of the
governing body of which is selected or appointed by a
labor organization, and (2) a primary purpose of which
is to provide benefits for the members of such labor
organization or their beneficiaries.
29 U.S.C. § 402(1).
Plaintiff asserts that the Secretary is not authorized under § 208
of the LMRDA to require unions to report on the finances of independent
trusts because she has failed to adequately explain how the Form T-1 is
"necessary to prevent the circumvention or evasion
of [the LMRDA] reporting requirements." Plaintiff also contends that, if
a union fails to exact the required financial information from a trust
(or other covered entity) which has no independent legal duty to comply
with the LMRDA reporting requirements, the new Form T-1 and the
availability of criminal penalties for violating the filing requirements
of the LMRDA, see 29 U.S.C. § 439,*fn15 put that union and its
officers at risk "of being held criminally responsible for violating a
duty they have no power to fulfill." Pl.'s Mot., at 26. Plaintiff also
maintains that the Form T-1 imposes requirements that conflict with
federal and common-law fiduciary duties, namely, forcing a union officer
who is also a trustee of an independent trust to "make a Hobson's choice"
"the union's interest in avoiding criminal sanction" and "the trust's
interest in being free from onerous reporting and itemization
requirements." Pl.'s Mot., at 29.
1. The Secretary Adequately Explained Her Determination that
the Form T-1 Is Necessary to Prevent Circumvention of the LMRDA Reporting
Plaintiff asserts that the Secretary is not authorized under § 208
of the LMRDA to require unions to report on the finances of independent
trusts because she has failed to adequately explain how the Form T-1 is
"necessary to prevent the circumvention or evasion of [the LMRDA]
reporting requirements." Specifically, Plaintiff argues that "it is
impossible to see how a requirement that unions file the new Form T-1 for
trusts that the unions neither control nor finance serves `to prevent the
circumvention or evasion of [any union] reporting requirement in the
LMRDA." Pl.'s Reply, at 17. Plaintiff's argument ignores the rulemaking
In the NPRM, the Secretary found that, because of the growth in the
size and complexity of unions' financial dealings since the enactment of
the LMRDA in 1959, unions today "have substantial financial dealings
with, or through, funds or organizations that are not wholly owned" by
the unions. The Secretary explained that
[t]hese separate organizations pose the same
transparency challenges as `off-the-books' accounting
procedures in the corporate setting: large-scale,
potentially unattractive financial transactions can be
shielded from public disclosure and accountability
through artificial structures, classification and
67 Fed. Reg. at 79282.
The Secretary noted that if a union transfers funds to another
organization, but fails to disclose disbursements made by that
organization, "union members may have no way to determine whether the
funds in question were actually spent for the benefit of members." Id.
The Secretary pointed out several examples of situations in which,
because of inadequate financial disclosure, it was "impossible for union
members to assess these trusts and fully exercise their self-governing
democratic membership rights." Id. at 79283. The Secretary first noted
that the Department's reports indicate that "joint training funds have
been used to pay union officials supplementary salaries or host
extravagant parties for trustees." Id.
The Secretary also pointed out that investigations by the Office of
Labor Management Standards ("OLMS") revealed the following problematic
situations. In one instance, OLMS found that twenty-nine local unions had
contributed an average of $62,000 per month to a statewide strike fund.
None of the twenty-nine local unions were required to report the
disbursements made by that fund, however, because no single union owned
the fund. Id. In another instance, the investigations revealed that a
local union held 97 percent of its funds on deposit at a credit union.
That credit union made 61 percent of its loans (many of which were near
$20,000) to four credit union loan officers, three of whom were
officers of the local union. The members of the local union had no
ready access to information about those loans because the local union did
not wholly own the credit union. Id.
Based on the rulemaking record data, the Secretary concluded that the
new Form T-1 would "substantially improve transparency of significant
organizations that are financially connected to reporting labor
organizations" and thus "provide union members, the public, and the
government the information they need to properly ensure union democracy,
fiscal integrity and transparency in a manner consistent with the intent
of Congress in enacting the LMRDA." Id.
Thus, Plaintiff's claim that the Secretary failed to adequately explain
how the Form T-1 is "necessary to prevent the circumvention or evasion of
[the LMRDA] reporting requirements" is unpersuasive. A reviewing court
will uphold an agency's determination if the agency provides "an
explanation that will enable the court to evaluate the agency's rationale
at the time of the decision." Pension Ben. Guar. Corp., 496 U.S. at 654.
In the instant case, the rulemaking record shows clearly that the
Secretary explained, in great detail, her determination that the Form T-1
is necessary to prevent the circumvention of the LMRDA reporting
2. The Possible Use of Criminal Penalties Does Not Invalidate
the Form T-1
Plaintiff contends that the trust disclosure rules are invalid because
they might subject to criminal penalties unions that cannot induce an
independent trust to provide the necessary financial disclosures. This
argument lacks force because, under the plain language of
29 U.S.C. § 439, a union is subject to criminal sanction only if that
union "willfully violates" the LMRDA reporting requirements.
29 U.S.C. § 439. Thus, so long as a union makes a good faith effort
to persuade the trust to provide the necessary information, it has no
reason to fear criminal sanction.
Moreover, the Secretary explicitly responded to this criticism and
explained that the Department did not intend to impose criminal penalties
on union officials who were unable to comply, despite their good faith
efforts to obtain the necessary information:
The Department recognizes that there may be some
instances in which a trust will not fully cooperate in
providing timely information to the reporting union.
However, the Department expects that, in those
infrequent instances, the reporting union officials
will be able to demonstrate that they made a
good-faith effort to obtain timely information from
the trust. In such situations, the Department is
prepared to exercise any available investigative and
other authority to assist the reporting union to
obtain the necessary information.
68 Fed. Reg. at 58418 (emphasis added).
Finally, the trust disclosure rules are not so onerous that trusts
would, at least in general, be unwilling or unable to voluntarily provide
the necessary information. A union may choose
to meet the trust disclosure requirement by submitting any one of the
following: (1) a statement that a qualifying report has been filed with a
separate government agency; (2) a copy of a qualifying independent
audit; or (3) a completed Form T-1. See id. at 58414. Moreover, the Final
Rule exempts from the trust reporting requirement those unions that are
eligible to file the Form LM-3 and LM-4, i.e., 81 percent of all unions
covered by the LMRDA. See id. at 58413. In addition, "there has been no
suggestion that covered trusts are ill equipped to comply with the
bookkeeping or reporting requirements established by the final rule."
Id. at 58416.
Thus, for the above-stated reasons, Plaintiff's contention that the
trust disclosure rules are unlawful because they might subject to
criminal penalties unions that cannot induce a trust to provide the
necessary financial disclosures must be rejected.
3. Fiduciary Duties
Plaintiff maintains that the Form T-1 imposes requirements that
conflict with federal and common-law fiduciary duties. However, as
explained above, the trust disclosure rules are not so onerous that
trusts would, at least in general, be unwilling or unable to voluntarily
provide the necessary information.
C. The Rule Is Reasonable, Adequately Explained, and Not Arbitrary or
Capricious; the Choice of a January 1, 2004 Effective Date Is Arbitrary
1. The Rulemaking Process
On December 27, 2002, the Secretary issued her NPRM initiating the
formal process that resulted in the Final Rule now in issue. See 67 Fed.
Reg. 79280 (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 Secretary 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 id. In particular, she noted that
the forms allowed the reporting of "large expenditures for generalized
purposes" without providing any detail. Id. at 79281. "Recent form LM-2
reports filed with the Department disclosed, for example, expenditures
$7,805,827 for `Civic Organizations,' and $3,927,968 for `Sundry
Expenses,' and $7,863,527 for `Political Education.'" Id.
The Secretary 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." Id. at 79282. The
Secretary also noted that OLMS investigations revealed that the "broad
aggregated categories on the existing forms made it possible to hide
embezzlements, self-dealing, overspending and financial mismanagement."
Id.*fn16 She also found that similar problems surrounded "trust[s] in
which a labor organization is interested," as defined in § 3(1) of
the LMRDA. See supra I.B.1.
These considerations prompted the Secretary to conclude that the
current forms no longer serve the underlying purpose of the LMRDA
financial reporting requirements, namely, to provide union members with
"`all the vital information necessary for them to take effective action
in regulating affairs of their organization.'" 68 Fed. Reg. at 58380
(internal citation omitted).
The Secretary reasoned that by "increas[ing] the transparency of union
financial reporting," the proposed rule would correct the
deficiencies of the existing LMRDA disclosure forms. See id. at 58420.
Specifically, she explained that the increased detail required under the
proposed rule would "enable workers to be responsible, informed, and
effective participants in the governance of their unions; discourage
embezzlement and financial mismanagement; prevent the circumvention or
evasion of the statutory reporting requirements; and strengthen the
effective and efficient enforcement of the Act by OLMS." Id.
The proposed rule mandated, among other things, (1) that receipts,
disbursements, and accounts payable and receivable in excess of a
threshold amount be individually reported on the Form LM-2; (2) that all
such expenditures be reported in new designated "functional" categories;
(3) that unions estimate and report on the Form LM-2 the time each
officer and member spends on activities corresponding to the functional
categories; (4) that unions report the number of members in specific
categories; (5) that unions report the assets, liabilities, receipts, and
disbursements of all "significant trusts" in which they have an interest
on the Form T-1; and (6) that unions file the Form LM-2 electronically.
At the outset of the rulemaking process, the Secretary acknowledged
that additional burdens would be imposed on unions by the new reporting
requirements. In weighing the burden that the changes would entail, she
noted that she would rely primarily on data provided by affected parties.
"Information regarding the
burden imposed by making the proposed changes and the benefit to be
gained is most likely to be obtained by proposing the changes for comment
so that unions who file these reports, union members, and other groups
that represent workers can express their views." See 67 Fed. Reg. at
During the ninety-day comment period, the Secretary received over
35,000 comments.*fn17 Although a majority of these comments were form
letters, approximately 1,200 individualized comments were received from
union members, unions, employers and trade organizations, public interest
groups, accountants and accounting firms, academics, and members of
The Secretary relied primarily upon the lengthy, substantive, and
detailed empirical analyses she received from the AFL-CIO and SRA
International, a professional provider of information technology services
contracted for by the Department.
The AFL-CIO's study of the burdens of the proposed rule was prepared by
economist Ruth Ruttenberg ("Ruttenberg Report"). See Pl.'s Ex. 3, Tab A.
The Ruttenberg Report concluded that the Secretary's initial $14.7
million estimate of the economic burden that the proposed rule would
place on reporting unions was too low. See id., at 4. It estimated, using
median-per-union cost figures, that the total costs of implementing the
new Form LM-2 electronic
filing system for AFL-CIO affiliates would be approximately $712
million. This figure did not include either the compliance costs
attributable to the Form LM-2 filers which are not AFL-CIO affiliates, or
the costs of completing other proposed reporting forms, such as the Form
T-1 for "significant trusts." Id. at 31.
The Ruttenberg Report also addressed the issue of the lead time needed
for compliance, concluding that, depending on the size and resources of
the union, unions would require between six months and one year before
the beginning of the first reporting period to which the Rule would apply
to adjust their accounting and information technology systems in order to
accurately collect and record the mandated new information. See id. at
The SRA study assessed the technical feasibility of electronically
collecting and reporting the information that would be required by the
proposed changes and concluded that the proposed rule could be implemented
"with relative ease." 68 Fed. Reg. at 58408.
In calculating the burdens of the Rule, the Secretary first identified
both the one-time and recurring tasks reporting unions would be required
to perform to comply with it. Second, she estimated (1) the hours
required to perform the tasks she had identified ("burden hours"); (2)
the cost of the labor to perform those tasks (hourly cost of labor x
burden hours); and (3) the cost of the capital equipment (hardware and
software) needed to comply
with the Rule. Third, she added these three burden hour estimates
to arrive at a total estimated cost associated with the Rule.
In the NPRM, the Secretary estimated 1 burden hour per union or $14.6
million as the baseline burden in the first reporting year. See 67 Fed.
Reg. at 29293-97. This baseline burden represented, "what the Department
believed was the accepted burden associated with the current Form LM-2,
as reflected in the Department's numerous, unchallenged submissions to
OMB in obtaining OMB's approval to continue using the form." 68 Fed.
Reg. at 58432.
2. The Final Rule
In the Final Rule, the Secretary revised and increased her 1 hour,
$14.6 million baseline burden hour estimate to over 300 hours and almost
$80 million. See 68 Fed. Reg. at 58439. The Secretary changed her
baseline burden hour estimate in response to the various comments she
received (including comments from Plaintiff), as well as the rest of the
rulemaking record, in order to "improve the estimate of the additional
time and cost involved in filing the revised form." See id. at 58386.
a. The Secretary's Electronic Filing Burden Hour Estimate
In assessing the cost and time involved in converting to an electronic
filing system, the Secretary estimated 27.9 burden hours for unions to
develop, test, and review special software ("translator software") that
allows unions to convert (or "translate") its financial data into a form
supported by the
Department's electronic reporting software. The Secretary also estimated
8.9 burden hours for unions to set-up and install the Department's
electronic reporting software.*fn18 See id. at 58439 (Table 4).
The Secretary based her electronic filing burden hour estimate on the
SRA study as well as "the expertise of investigators with first-hand
knowledge of union financial reporting, "the Department's review of a
variety of accounting software packages, its evaluation of the
recordkeeping requirements of the current Form LM-2, and its review of
the public comments." Id. at 58437.
She also pointed out that the electronic filing requirement applies
only to those unions that have $250,000 or more in annual receipts. This
means that 81 percent of all unions covered under the LMRDA are not
subject to the electronic filing requirement. See 68 Fed. Reg. at 58408.
The Secretary also noted that raising the Form LM-2 filing threshold to
$250,000 enabled 501 more unions, i.e., some of the smallest filers that
are most likely to have hardware and/or software problems, to file the
far less burdensome Form LM-3. See id. at 58409.
The AFL-CIO's own Beaconfire Report estimated that the burden hours
associated with developing translator software would range from 74 hours
for smaller unions to up to 256 hours for larger unions. Pl.'s Mot., at
36. However, the Secretary explained at length and in great detail why
she did not attach greater weight to this report. First, she noted that
assumed, without explanation, that the average data
file to be transmitted by unions to the Department
will be substantially larger than the size assumed by
SRA. SRA, by contrast, stated that it extrapolated
file size requirements based on the data types and
volume currently being reported on Form LM-2, taking
into account the fact that data volume varies
significantly from union to union.
68 Fed. Reg. at 58408.
Second, she reasoned that it "fails to recognize that the information
required by the new Form LM-2 is not structurally complex or
fundamentally different from the information that has been reported on
the current form." Id. Third, she pointed out that it "acknowledges that
[its] figures, like those developed by SRA, are merely estimates." Id.
b. The Secretary's Labor Cost Estimate
The Secretary explained that her analysis of labor costs was designed
"to provide estimates for a `representative' union," and thus, that her
"estimates largely reflect weighted averages." 68 Fed. Reg. at 58433. She
pointed out that "unions will rely upon the services of some or all of
the following positions (either internal or external staff, including
union president, union
secretary-treasurer, accountant, bookkeeper, computer programmer,
lawyer, consultant)" in implementing the requirements of the new rule.
She noted that, "[s]ince the AFL-CIO did not include estimates for
consulting, accounting, legal, or similar costs, the Department had to
assume additional hours for these activities in order to arrive at a
weighted average for computing a total burden estimate" for Form LM-2
filers. Id. at 58432. The wage rates that she used to determine the cost
of such services were averages of "wage rates and employer costs
published by the Bureau of Labor Statistics or derived from data reported
in [recently filed LM-2's]." Id. at 58433, 58445.
c. The Secretary's Capital Cost Estimate
The Secretary estimated that "LM-2 filers will spend an average of
nearly $1,000 for computer hardware, hardware upgrades, accounting
software, and software upgrades. . . ." 68 Fed. Reg. at 58436. She
explained that these estimates "are weighted averages of $1,500 for
computer hardware and $250 for accounting software across all LM-2
filers." Id. She noted that, in arriving at these estimates, she "assumed
that most of the computer equipment and software would be purchased for
normal business operations," an assumption informed by data suggesting
that unions commonly used commercial off-the-shelf software packages to
maintain their finances and prepare financial reports. Id. at 58433.
Information submitted by the AFL-CIO suggested
79% of national and international unions and 67% of
local unions will not need any new computer hardware;
38% of national and international unions and 25% of
local unions will not need any new or upgraded
computer software; and 86% can expand their current
accounting systems to include the additional fields to
accommodate functional reporting.
Id. at 58409.
d. The Rule's Effective Date
The Secretary set a January 1, 2004 effective date, thus giving those
unions that use a fiscal year beginning January 1 a little less than two
months to develop the new accounting systems, purchase the new computers
and software, and train their staff to comply with the new Rule. Unions
using a fiscal year that begins on a date other than January 1 will have
a concomitant amount of time to comply with the Rule. See id. at 58413.
The Secretary stated that, in setting the January 1, 2004 date, "[t]he
aim of the Department is to balance some reasonable amount of time that
the unions will need to adapt to the new reporting requirement and the
members' immediate interest in knowing how their dues money is spent." 68
Fed. Reg. at 58411.
In support of her imposition of the January 1, 2004 effective date, the
Secretary noted that (1) "unions must already track and maintain records
for all disbursements in order to report total disbursements for the
variety of functional categories on the
current Form LM-2," id. at 58421; and (2) "[t]he public comments and OLMS
auditing and accounting experience confirm that many local . . . unions
already collect and maintain some . . . of the information required by
the new form." Id.
Most of the relevant testimony, however, recommended a significantly
longer grace period than the Secretary allowed. "Several unions suggested
that the effective date be delayed six months to two years." 68 Fed.
Reg. at 58410-11. Some commenters pointed out that, "given the
Department's experience with e.LORS and the SEC's experience with its
reporting system, a delay of two to four years before full implementation
was more realistic."*fn19 Id. Other commenters suggested "that the
Department's software be subject to a separate review and comment process
after it is issued." Id. The Secretary received no comments in opposition
to the Rule's January 1, 2004 effective date that differentiated between
unions using a fiscal year beginning January 1 and those using a fiscal
year beginning on or after July 1.
3. Substantial Evidence in the Rulemaking Record Supports the
Secretary's Cost of Compliance Estimates and the Secretary Has Adequately
Explained Those Estimates
The AFL-CIO claims that the Secretary's action in issuing the Rule is
arbitrary and capricious because (1) she underestimated the
increased costs of compliance associated with the Rule;*fn20 (2)
she failed to adequately explain those cost estimates; and (3) she set a
January 1, 2004 effective date, thus giving those unions that use a
fiscal year beginning January 1 a little less than two months to develop
the new accounting systems, purchase the new computers and software, and
train their staff to comply with the new Rule.
Defendant maintains that the rulemaking record shows that the
Secretary's methodology for evaluating the relevant costs of the Rule and
adjusting those cost estimates as needed to incorporate comments and data
received during the comment period was reasonable, within her
discretion, and adequately explained. Defendant also maintains that the
Secretary's imposition of the January 1, 2004 effective date was not
arbitrary and capricious.
The APA requires a reviewing court to examine the rulemaking record to
ensure that the agency has "identified all relevant issues, [given] them
thoughtful consideration duly attentive to comments received, and
formulated a judgment which rationally accommodates the facts capable of
ascertainment and the policies slated for effectuation." Telocator
Network of America v. FCC, 691 F.2d 525, 545 (D.C. Cir. 1982). "The
ultimate standard of review governing this . . . inquiry is a narrow one:
the court is not
permitted to substitute its judgment for that of the agency." U.S. Lines
v. Fed. Maritime Comm'n, 584 F.2d 519, 526 (D.C. Cir. 1978). In the
instant case, the rulemaking record demonstrates that the Secretary's
cost of compliance estimates were the product of reasoned decisionmaking
and that she adequately explained her estimates.
First, both the NPRM and the Final Rule provided lengthy, technical
explanations for the Rule and demonstrate that the Secretary gave serious
consideration to the relevant record data. In a number of instances, the
Secretary either adopted the estimates provided by the AFL-CIO or other
commenters, or revised her estimates based on comments and data received
during the comment period. See 68 Fed. Reg. at 58432 ("The Department
used the AFL-CIO and other commenters' estimates when they provided
information that the Department did not have and that increased the
accuracy of its estimates by adding to the Department's own data and
For example, the Secretary relied upon the AFL-CIO's survey data to
support its conclusion that "many unions already maintain their records
and accounting systems in ways that are readily compatible with the
requirements of the final rule." The AFL-CIO survey data suggested that:
59% of national and international unions record
expenses by type of activity or functional category;
62% of unions can generate the required itemization
detail; 86% of
unions do not have trouble downloading information
from their account systems into a spreadsheet; 40% of
national and international unions have a system of
accounts receivable that is immediately compatible
with the final rule; and 66% of national and
international unions have a system of accounts payable
that is immediately compatible with the final rule.
68 Fed. Reg. at 58385.
In some cases, the Secretary considered certain of Plaintiff's
estimates in light of other available data and the Department's
expertise, and then determined that other record data were more
reliable. See e.g., 68 Fed. Reg. at 58408("The AFL-CIO figures indicating
that far fewer labor organizations use [the Department's
electronic-filing] software, cannot refute the Department's actual usage
data."; id. (explaining, at length, the Secretary's reasons for not
attaching greater weight to the AFL-CIO's Beaconfire Report); id. at
58426 (noting that the AFL-CIO survey is "open to question" because the
"Department's own experience, based on years of reviewing union records
in audits and investigations, suggests that the AFL-CIO estimates of
costs are more likely to be too high than too low").
The Secretary did not act arbitrarily and capriciously simply because
she did not adopt wholesale the conclusions of studies submitted by
Plaintiff. See Nat'l Min. Ass'n v. Mine Safety and Health Admin.,
116 F.3d 520, 549 (D.C. Cir. 1997) (holding that the agency did not act
arbitrarily and capriciously "simply by failing
to adopt the Union's recommendations"). When agencies are evaluating data
within their technical expertise, reviewing courts generally give them an
"extreme degree of deference." Marsh v. Oregon Natural Res. Council,
490 U.S. 360, 378 (1989). This is because "[w]hen specialists express
conflicting views, an agency must have discretion to rely on the
reasonable opinions of its own qualified experts." Id.
Second, the Final Rule was largely devoted to answering the many
objections raised by Plaintiff during the comment period. The APA
requires an agency to respond to "relevant" and "significant" public
comments, i.e., comments which "raise points relevant to the agency's
decision and which, if adopted, would require a change in an agency's
proposed rule." Home Box Office, Inc. v. FCC, 567 F.2d 9, 35-36 & n.58
(D.C. Cir. 1977).
The rulemaking record demonstrates that the Secretary responded to all
of the significant challenges presented by Plaintiff's comments and
engaged in a careful and reasoned consideration of the problems presented
therein. In Part II of the statement of basis and purpose, the Secretary
responded in great detail to Plaintiff's claim that she lacked the
statutory authority under §§ 201(b) and 208 of the LMRDA to issue the
Rule. See 68 Fed. Reg. at 58376-77. In Part III, she addressed at length
Plaintiff's claim that she underestimated the cost and time involved in
converting to an electronic filing system. See id. at
58407-10. In Part V, she outlined in great detail Plaintiff's claim that
her burden hour estimates were flawed. She then reviewed the record data
she had relied on and explained the methodology she used to reach her
burden estimates. See id. at 58431-41. The rulemaking record thus shows
clearly that the Department met its obligation to "examine the relevant
data and articulate a satisfactory explanation for its action." Motor
Vehicle Mfrs. Ass'n, 463 U.S. at 43.
Third, the rulemaking record demonstrates that the Secretary carefully
weighed the costs (both one-time and recurring) and benefits of the Rule
and concluded "on balance, that technological advances have made it
possible to provide the level of detail necessary for union members to
have a more accurate picture of their union's financial condition and
operations without imposing an unwarranted burden on reporting unions."
68 Fed. Reg. at 58409.
The Secretary explained that her calculus of the costs and benefits of
the Rule were based, in significant part, "on the value of transparency
and accountability in union financial affairs as well as on very
difficult projections regarding the impact of the accessibility of
financial information on sound union financial management and union
democracy generally." Id. at 58419. Specifically, she concluded that the
directly benefits union members because disclosure
permits members to make better decisions about
union governance and helps deter and detect fraud.
also benefits from the deterrence of fraud, due to the
costs fraud imposes on, for example, the criminal
justice system, and from the promotion of ethical
conduct in the administration of labor organization
affairs, which increases the stability of labor
organizations, and thus promotes the flow of
68 Fed. Reg. at 58381.
In summary, the Secretary's explanation, taken as a whole, demonstrates
that she examined the data, considered the relevant factors, and made a
reasoned judgment based on the record. Accordingly, the Secretary's cost
of compliance estimates and her explanation pass muster under the APA.
4. The Secretary's Choice of a January 1, 2004 Effective Date
Is Arbitrary and Capricious
In this case, the Secretary set a January 1, 2004 effective date, thus
giving those unions that use a fiscal year beginning January 1 a little
less than two months to develop the new accounting systems, purchase the
new computers and software, and train their staff to comply with the new
Rule. Unions using a fiscal year that begins on a date other than January
1 will have a concomitant amount of time to comply with the Rule. 68 Fed.
Reg. at 58413. The Secretary acknowledges that "some interim period will
be needed for unions to adapt their recordkeeping systems to the new
requirements," 68 Fed. Reg. at 58411, and that "filers will need to study
and understand the new requirements, make adjustments to the union's
recordkeeping system, and train staff." Id. She
claims that the January 1, 2004 effective date allows all unions,
including those using a fiscal year that begins January 1, "adequate time
to conform their accounting systems to the revised forms before the start
of the first reporting period for which they will be required to report
on the new Form LM-2 (no earlier than January 1, 2004)." 68 Fed. Reg. at
58437. For a number of reasons, the Court concludes that the Secretary's
reasoning does not withstand close analysis.
First, the majority of the comments specifically dealing with the
Rule's January 1, 2004 effective date opposed it, saying that it was too
soon and that the effective date should be delayed six months to two
years. Many of the commenters also argued that the Final Rule should not
be imposed until the Department's electronic reporting software had been
tested and implemented, and was deemed fully operational. See id. at
The AFL-CIO also submitted a lengthy declaration from Linda Jardine, a
Certified Public Accountant ("CPA"), in support of its Motion for a
Preliminary Injunction. Jardine concluded that a January 1, 2004
effective date was too soon because "most unions will have to extensively
or significantly revise their accounting systems." Id., ¶ 35. In
reaching this conclusion, Jardine did not differentiate between unions
using a fiscal year beginning January 1 and those using a fiscal year
beginning on or after July 1. She explained that revisions to an
accounting system of the sort
necessitated by the Final Rule "require special training and supervision
of all personnel with responsibility for processing expenditures . . .
including those in other departments [than accounting] who are
responsible for procuring services and approving invoices or other
requests for payment." Id., ¶ 36. Jardine also noted that adding new
functional categories into a union's existing accounting system is a
difficult and time-consuming process.*fn21 Id., ¶ 44. Based on her
experience as a CPA, she concluded that:
any organization, whether or not it is a union, that
decides to make modifications to its existing
accounting system or replace its accounting system
altogether, needs to spend considerable time
researching and comparing the available options with
respect to suitability and cost. Many of my clients
who have undertaken such purchases have been able to
do so only by consulting with outside experts in
information technology and accounting. Moreover,
migrating to an entirely new system requires months of
preparation in order to ensure that the system
functions properly and there is no loss of historical
data. This implementation usually involves a
substantial number of parallel test runs before the
organization converts officially to the new or
modified system. Similarly, making the transition to a
modified system may take a substantial amount of time
and preparation to ensure the proper functioning of
Jardine Decl., ¶ 47 (emphasis in original). Second, despite the
fact that the Secretary imposed a January 1, 2004 effective date, the
Department does not expect its
electronic reporting software to be ready for distribution before March
31, 2004. See Def.'s Mot. for Recons./Clarification, at 4. The Jardine
Declaration makes clear, however, that if a union discovers several
months after the beginning of its fiscal year that it has not designed
its query and report system correctly in light of the Department's
electronic reporting software, that union may have to redesign and
re-execute all of its queries and reports or to manually "cut and paste"
information from its internal accounting reports into the LM-2 form at
the end of the fiscal year. In either event, the options are "expensive,
resource-intensive, and time-consuming." Jardine Decl., at ¶ 61.
Third, in choosing the January 1, 2004 effective date, the Secretary
claimed no particular need for extraordinary urgency. While the
rulemaking record, as already discussed, fully supports the Secretary's
conclusion that "the advantages derived from the more detailed reporting
outweigh the extra burden imposed on unions," she has failed to explain
how those unions that use a fiscal year beginning January 1 could
possibly make such far-reaching changes in less than two months,
especially when these same regulations, with only minor modifications,
have been in place for the last forty-three years. 68 Fed. Reg. at
In sum, the rulemaking record demonstrates no reasonable justification
for setting a January 1, 2004 effective date which, as a practical
matter, requires unions that use a fiscal year beginning January 1 to
make such far-reaching changes in less than two months. Consequently, the
Secretary's imposition of the January 1, 2004 effective date is arbitrary
and capricious and in violation of the APA.
The Court is persuaded, however, by the Government's Motion for
Reconsideration/Clarification of the Preliminary Injunction, that the
rulemaking record does not support an order enjoining the Rule's
effective date for those unions that use a fiscal year beginning on or
after July 1, provided that the Department makes available its electronic
reporting software at least ninety days before that date.
In its Motion for Reconsideration/Clarification, the Government argues
convincingly that there is no particularized showing of harm to those
unions using a fiscal year that begins on or after July 1 caused by the
Rule becoming effective July 1, provided that the Department makes
available its electronic
reporting software by March 31, 2004.*fn23 The Government also points
out that "the Court's finding that a `two month transition period' is
likely arbitrary and capricious . . . does not, in any way, suggest that
an eight or nine-month transition period, as available to those labor
organizations whose fiscal year begins on July 1, is insufficient."
Def.'s Mot. for Recons./Clarification, at 5 (citing to AFL-CIO v. Chao,
No. 03cv2464 (GK), December 31, 2003, Mem. Op., at 20-22). Notably,
Plaintiff offers no meaningful rebuttal to the Government's arguments.
Thus, in light of the Government's Motion for
Reconsideration/Clarification of the Preliminary Injunction, the Court
concludes that the Department should be enjoined from imposing the Final
Rule until July 1, 2004, or ninety days after the Department makes its
electronic reporting software available, whichever is later.
For the reasons stated, Plaintiff's request for permanent relief
setting aside the Rule and enjoining its implementation is granted
in part and denied in part.
An Order will issue with this opinion.