United States District Court, District of Columbia
For UPMC BRADDOCK, UPMC MCKEESPORT, UPMC SOUTHSIDE, Plaintiffs: Jeffrey W. Larroca, LEAD ATTORNEY, ECKERT SEAMANS CHERIN & MELLOTT, LLC, Washington, DC; John J. Myers, PRO HAC VICE, Ryan J. Siciliano, PRO HAC VICE, ECKERT, SEAMANS, CHERIN & MELLOTT, Pittsburgh, PA.
For HILDA L. SOLIS, Secretary United States Department of Labor, UNITED STATES DEPARTMENT OF LABOR, MARY ANNSEDLACEK, District Director United States Department of Labor-ESA-OFCCP, OFFICE OF FEDERAL CONTRACT COMPLIANCE PROGRAMS, Defendants: Lily Sara Farel, LEAD ATTORNEY, U.S. DEPARTMENT OF JUSTICE, Washington, DC.
PAUL L. FRIEDMAN, United States District Judge.
This is an action to review a final agency decision by the Department of Labor's Administrative Review Board under the Administrative Procedure Act, 5 U.S.C. § 701 et seq. Before the Court are cross-motions for summary judgment by the plaintiffs and the defendants, along with the plaintiffs' motion for leave to supplement the administrative record. Upon consideration of the parties' papers, the relevant legal authorities, and the entire record in this case, the Court will grant the defendants' motion for summary judgment, deny the plaintiffs' motion for summary judgment, and deny the plaintiffs' motion for leave to supplement the administrative record. 
The plaintiffs in this action are three hospitals affiliated with the University of Pittsburgh Medical Center: UPMC Braddock, UPMC McKeesport, and UPMC Southside (collectively, the " hospitals" ). The hospitals have entered into contracts with a health maintenance organization, UPMC Health Plan, to provide medical services and supplies to individuals enrolled in its coverage program. The
Health Plan, in turn, has contracted with the U.S. Office of Personnel Management (" OPM" ) to provide coverage for federal employees who participate in the Federal Employees Health Benefits Program. Because the hospitals provide medical services to federal employees, among others, pursuant to their agreements with the UPMC Health Plan, which has contracted with OPM to provide coverage for those employees, a compliance and enforcement division of the Department of Labor has concluded that the hospitals qualify as government subcontractors and thus are subject to certain statutory and regulatory requirements involving equal opportunity efforts that are imposed on such subcontractors. The hospitals adamantly deny that they qualify as government subcontractors or that they are subject to the oversight of the Labor Department or the statutory and regulatory requirements it seeks to impose. Following administrative enforcement proceedings, the Department of Labor's Administrative Review Board (" ARB" ) disagreed with the hospitals. It concluded that they are subcontractors and issued an order enjoining them from failing or refusing to comply with the equal opportunity provisions at issue here. The Court agrees with the ARB's conclusions and will uphold its decision.
B. Statutory and Regulatory Background
This dispute arises from an Executive Order and two laws and the regulations promulgated by the Secretary of Labor under their authority: Executive Order 11246, 30 Fed. Reg. 12319 (Sept. 24, 1965); Section 503 of the Rehabilitation Act of 1973, as amended, 29 U.S.C. § 793 (" Rehabilitation Act" ); and Section 402 of the Vietnam Era Veterans' Readjustment Assistance Act of 1974, 38 U.S.C. § 4212 (" VEVRAA" ). The Executive Order and the statutes require that all applicable government contracts and subcontracts include specific clauses furthering the equal opportunity goals of federal law.
Specifically, Executive Order 11246, as amended by Executive Order 11375, 32 Fed. Reg. 14303 (Oct. 13, 1967), directs that all government agencies " shall include" clauses in their applicable government contracts specifying that " [t]he contractor will not discriminate against any employee or applicant for employment because of race, color, religion, sex, or national origin" and " will take affirmative action to ensure that applicants are employed, and that employees are treated during employment, without regard to their race, color, religion, sex or national origin." Exec. Order No. 11246 § 202(1).  The Executive Order further directs that the contractor " will include" these provisions " in every subcontract or purchase order unless exempted by rule, regulations, or orders of the Secretary of Labor." Id. § 202(7). Each subcontractor, in addition to complying with the non-discrimination and affirmative action obligations set forth in these provisions, " will permit access to his books, records, and accounts by the contracting agency and the Secretary of Labor for purposes of investigation to ascertain compliance with such rules, regulations, and orders" and " will furnish all information required by the Executor Order and by the rules, regulations, and orders of the Secretary of Labor." Id. § 205. The Secretary is responsible for the administration of these provisions and is authorized to " adopt such rules and regulations and issue such orders as he deems necessary
and appropriate to achieve the purposes thereof." Id. § 201.
The Rehabilitation Act requires that any government contract or subcontract in excess of $10,000 for the procurement of " personal property" or " nonpersonal services" for the United States " shall contain" a provision requiring that the contracting or subcontracting party " take affirmative action to employ and advance in employment qualified individuals with disabilities." 29 U.S.C. § 793(a). The President is authorized to implement the provisions of this section by promulgating regulations, id., an authority that the President has delegated to the Secretary of Labor. See Exec. Order No. 11758, 39 Fed. Reg. 2075 (Jan. 15, 1974).
Finally, VEVRAA provides that any government contract or subcontract in excess of $100,000 for the procurement of " personal property" or " nonpersonal services" for the United States " shall contain" a provision requiring that the contracting or subcontracting party " take affirmative action to employ and advance in employment qualified covered veterans." 38 U.S.C. § 4212(a)(1). The Secretary of Labor is authorized to promulgate regulations promoting the implementation of these requirements. Id. § 4212(a)(2).
Exercising the power conferred by statute and Executive Order, the Secretary of Labor has issued regulations under the authority of all three provisions. Two aspects of those regulations are relevant to the dispute in this case. First, the regulations state that the equal opportunity clauses described above, which are required to be included in every nonexempt government contract and subcontract, " shall be considered to be a part of every contract and subcontract required by the [statute or executive] order and the regulations in this part to include such a clause whether or not it is physically incorporated in such contracts and whether or not the contract between the agency and the contractor is written." 41 C.F.R. § 60-1.4(e) (implementing Exec. Order No. 11246) (emphasis added); see 41 C.F.R. § 60-741.5(e) (implementing Rehabilitation Act); 41 C.F.R. § 60-250.5(e) (implementing VEVRAA). In other words, the regulations provide that the equal opportunity clauses are deemed included in all qualifying contracts and subcontracts by operation of law, regardless of whether the contracting entities actually include the clause in their agreements.
Second, the regulations define certain key terms used in the Executive Order and statutes, including with the word " subcontract" :
Subcontract means any agreement or arrangement between a contractor and any person (in which the parties do not stand in the relationship of an employer and an employee):
(1) For the purchase, sale or use of personal property or nonpersonal services which, in whole or in part, is necessary to the performance of any one or more contracts; or
(2) Under which any portion of the contractor's obligation under any one or more contracts is performed, undertaken or assumed.
41 C.F.R. § 60-1.3; see 41 C.F.R. § 60-741.2( l ) (setting forth same definition); 41 C.F.R. § 60-250.2( l ) (same). A " subcontractor" is defined simply as " any person holding a subcontract" in the requisite monetary amount. 41 C.F.R. § 60-1.3; 41 C.F.R. § 60-741.2(m); 41 C.F.R. § 60-250.2(m). The regulations also provide guidance on the meaning of " nonpersonal services," a term used in the first prong of the definition of " subcontract" :
The term " nonpersonal services" as used in this section includes, but is not limited
to, the following services: Utilities, construction, transportation, research, insurance, and fund depository.
41 C.F.R. § 60-1.3.
The equal opportunity requirements of Executive Order 11246, the Rehabilitation Act, and VEVRAA are administered by the Office of Federal Contract Compliance Programs (" OFCCP" ) within the Department of Labor. The Secretary's regulations impose certain obligations on contractors and subcontractors that are designed to allow OFCCP to ensure compliance with the laws' equal opportunity mandates, including reporting requirements, compliance evaluations, and on-site reviews. See 41 C.F.R. § § 60-1.7, 60-1.20, 60-250.60(a)(1), 60-250.60(a)(1)(ii), 60-741.60(a)(1), 60-741.44(h), 60-741.60(a)(1)(ii). Among these obligations is that contractors and subcontractors must permit " access to [their] records and site[s] of employment," as set forth in a regulation which provides:
Each contractor shall permit access during normal business hours to its premises for the purpose of conducting on-site compliance evaluations and complaint investigations. Each contractor shall permit the inspecting and copying of such books and accounts and records, including computerized records, and other material as may be relevant to the matter under investigation and pertinent to compliance with the Order, and the rules and regulations promulgated pursuant thereto by the agency, or the Deputy Assistant Secretary.
41 C.F.R. § 60-1.43.
If OFCCP has reasonable cause to believe that a contractor or subcontractor has violated the statutory or regulatory provisions described above, it may issue " a notice requiring the contractor to show cause, within 30 days, why monitoring, enforcement proceedings or other appropriate action to ensure compliance should not be instituted." 41 C.F.R. § 60-1.28. If certain required conciliation efforts are unsuccessful, see 41 C.F.R. § 60-1.26(b)(1), OFCCP may institute administrative enforcement proceedings by filing a complaint with the Department of Labor's Office of Administrative Law Judges. Id. § 60-1.26(a). An administrative law judge then holds a hearing on the record and issues a recommended decision and order, which proceeds to the Department's Administrative Review Board for a final agency decision.
C. Factual and Procedural Background
In 1995, each of the plaintiff hospitals entered into payment agreements with UPMC Health Plan in which the hospitals agreed to provide medical services to individuals whose employers had purchased group health coverage from the Health Plan. AR 32-38 (Stipulated Facts, or " SF" ) ¶ ¶ 9, 11, 15, 19. Effective January 1, 2000, the Health Plan entered into a contract with OPM in which the Health Plan agreed to provide the service of a health maintenance organization and offer coverage for medical services and supplies to federal employees who enroll in its program of benefits. See SF ¶ 21; AR 769-848 (contract for federal employees health benefits). Although the hospitals' original agreements with the Health Plan were entered into before the Health Plan held a contract with the federal government, each hospital renegotiated and renewed its agreement with the Health Plan after the year 2000, when the Health Plan contracted with OPM. SF ¶ ¶ 9, 11, 15, 17; see AR 136-45, 304-11, 585-98 (original agreements); AR 250-55, 432-37, 707-12 (notices of amendment).
The agreements between the hospitals and the Health Plan set forth the rates and formulas to be used by the Health Plan in making payments to the hospitals
for medical services and supplies provided to covered individuals. SF ¶ 18. Pursuant to the contract between OPM and the Health Plan, in conjunction with the agreements between the Health Plan and the hospitals, when federal employees receive medical treatment at one of the hospitals, the hospital bills the Health Plan according to the payment terms set forth in its agreement. Those agreements are not limited to, and do not specifically mention, federal government employees covered by virtue of the contract between the Health Plan and OPM, but rather apply to all individuals covered by the Health Plan. Id. ¶ 19.
None of the agreements between the hospitals and the Health Plan contain provisions obligating the hospitals to comply with Executive Order 11246, Section 503 of the Rehabilitation Act, or Section 402 of VEVRAA. SF ¶ 20.
In January 2004, OFCCP sent letters to each hospital stating that it had been selected for a compliance review under the Executive Order, the Rehabilitation Act, and VEVRAA, and requesting that the hospital submit information demonstrating compliance with the equal opportunity provisions in those laws and permit OFCCP representatives to conduct on-site inspections. SF ¶ 24; AR 1070-94. The hospitals did not supply the information requested by OFCCP and instead sent it a joint letter maintaining that they held no government subcontracts and thus were not subject to the auditing authority of OFCCP or the equal opportunity requirements of the statutes and Executive Order. SF ¶ ¶ 25-26; AR 1095-96.
In November 2006, OFCCP filed administrative complaints against the hospitals to enforce Executive Order No. 11246, Section 503 of the Rehabilitation Act, and Section 402 of VEVRAA. AR 1223. Appearing before the ALJ assigned to hear the matter, the hospitals contended that they held no government subcontracts and thus were not subject to OFCCP's authority. See AR 18-31. Disagreeing with the arguments advanced by the hospitals in support of that contention, the ALJ issued a recommended decision and order granting OFCCP's motion for summary judgment. See AR 1133-52. The hospitals then filed exceptions to the ALJ's recommended decision and order with the ARB. See AR 1153-55. In May 2009, the ARB issued a final decision and order upholding the ALJ's decision and confirming that the hospitals' agreements with the Health Plan are subcontracts covered by the three equal opportunity provisions. See AR 1221-34. The ARB's final decision and order permanently enjoins the hospitals from failing or refusing to comply with the requirements of Executive Order 11246, the Rehabilitation Act, VEVRAA, and their implementing regulations. AR 1232.
The hospitals now seek review of the ARB's decision and order under the APA, 5. U.S.C. § 701 et seq., asking the Court to set aside the decision and order and enjoin the Department of Labor from enforcing it. The hospitals maintain that the ARB erred in concluding that they are government subcontractors obligated to comply with the equal opportunity requirements of federal law. They further contend that the Secretary of Labor's implementing regulations conflict with the underlying laws, exceed the grant of his delegated legislative authority, and are " inconsistent with the fundamental notion that a party is bound by the affirmative action obligations of Executive Order 11246, Section 503 of the Rehabilitation Act and VEVRAA by virtue of electing to do business with the federal government and/or by agreeing to be bound by such obligations." Compl. ¶ ¶ 65, 70-72.
The parties have filed cross-motions for summary judgment. In addition, the hospitals have moved for leave to supplement the administrative record with one additional document, a request that the Secretary opposes. As the ARB explained, and as the parties agree, this case ...