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.
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.
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.
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.
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 ...