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Rhea Lana, Inc. v. U.S. Department of Labor

United States District Court, D. Columbia.

November 21, 2014

RHEA LANA, INC. and RHEA LANA'S FRANCHISE SYSTEMS, Plaintiffs,
v.
U.S. DEPARTMENT OF LABOR, Defendant

For RHEA LANA, INC., RHEA LANA'S FRANCHISE SYSTEMS, INC., Plaintiffs: Aram A. Gavoor, LEAD ATTORNEY, PRO HAC VICE, Lorinda B. Harris, Prashant Kumar Khetan, Daniel Zachary Epstein, CAUSE OF ACTION, Washington, DC; Reed D. Rubinstein, DINSMORE & SHOHL LLP, Washington, DC.

For DEPARTMENT OF LABOR, Defendant: Steven A. Myers, LEAD ATTORNEY, UNITED STATES DEPARTMENT OF JUSTICE, Civil Division, Federal Progarms Branch, Washington, DC.

Page 241

MEMORANDUM OPINION

CHRISTOPHER R. COOPER, United States District Judge.

The U.S. Department of Labor (" DOL" ) investigated a small Arkansas company that organizes consignment sales; concluded that it had violated the Fair Labor Standards Act (" FLSA" ) by relying on volunteer workers; and notified the company in a letter that it could face steep fines for future infractions. The company, Rhea Lana, Inc., brought this lawsuit to challenge DOL's adverse determination under the Administrative Procedure Act (" APA" ). The Department moves to dismiss the suit, arguing that its determination letter does not constitute reviewable " final agency action" under the APA. Until recently, the Department's argument would have easily prevailed under a long line of D.C. Circuit cases holding that agency notifications are not judicially reviewable if their legal effects are contingent on the initiation of a future enforcement action. In Sackett v. Environmental Protection Agency, 132 S.Ct. 1367, 182 L.Ed.2d 367 (2012), however, the Supreme Court unanimously held to be final agency action an Environmental Protection Agency (" EPA" ) compliance order issued prior to the commencement of any enforcement proceeding. Rhea Lana contends that Sackett controls this case. While the Court sympathizes with Rhea Lana's arguments, it is bound to disagree. Because EPA's compliance order in Sackett imposed legal obligations that DOL's letter here does not, and because the Court does not read Sackett to have silently overturned longstanding D.C. Circuit precedent, the Court concludes that DOL's determination is not reviewable and, accordingly, will grant the Department's motion to dismiss.

I. Background

According to its Complaint, Rhea Lana, Inc. is a for-profit business that organizes consignment sales of children's toys and clothing. Compl. ¶ 12. The company leases space and coordinates logistics for the sales, while consignors supply all of the merchandise. Id. ¶ ¶ 14-16. Consignors bring their items to each event, attach price tags, and place them on display racks. Id. ¶ 17. In most cases, consignors receive 70 percent of the proceeds from sold items. Id. ¶ 25. Rhea Lana offers consignors the choice of retrieving unsold items or donating them to charity. Id. The company relies on consignors to " volunteer" at its events to perform basic functions like greeting attendees, arranging items for sale, and carrying purchases to customers' cars. Id. at 3. While volunteering is not required for an individual to consign at a Rhea Lana event, " consignor/volunteers" receive early access to the sales at which they work and can place their items in favorable locations on the display racks. Id. ¶ ¶ 18-26. Co-plaintiff Rhea Lana's Franchise Systems offers franchise opportunities " to enterprises that operate in substantial conformity with Rhea Lana's business model" by " operat[ing] semi-annual consignment events" and allowing consignors to volunteer. Id. ¶ 27.[1] Ms. Rhea Lana Riner serves as

Page 242

president of both Rhea Lana, Inc. and Rhea Lana's Franchise Systems. Hr'g Tr. 29:6-7 (July 1, 2014).

DOL's Wage and Hour Division launched an investigation into Rhea Lana's employment practices in January 2013. Compl. ¶ 28. In a May 2013 meeting, DOL advised Rhea Lana that it owed back wages to its consignor/volunteers, who the Department determined should be paid as employees. Id. ¶ 29. DOL also informed Rhea Lana that it owed back wages to 39 additional employees who were classified as managers. Id. Ex. 3. Rhea Lana, which cooperated fully in the investigation, agreed to pay back wages to the 39 employees but disagreed with the Department's conclusion regarding the consignor/volunteers and refused to pay back wages to them. Id.; id. ¶ 28. In August 2013, DOL issued two letters regarding the results of the investigation. Id. Exs. 2-3. DOL sent the first letter to Rhea Lana employees and individuals who had served as consignor/volunteers. Id. Ex. 2. The letter explained that Rhea Lana may not have paid them " as required by the law" from January 2011 to January 2013, and that DOL had contacted Rhea Lana about the issue, but the company had refused to pay the consignor/volunteers. Id. It continued that DOL had chosen not to sue Rhea Lana for the back wages, but consignor/volunteers had the right under the FLSA to file their own lawsuits. Id. Three weeks later, DOL sent a letter to Ms. Riner memorializing its findings. Id. Ex. 3. The letter noted that Rhea Lana had agreed to pay back wages to 39 employees, but had refused to do so for consignor/volunteers. Id. It continued:

[DOL] would like to direct your attention to section 16(e) of the FLSA and Regulations, Part 578. As you will note, section 16(e) provides for the assessment of a civil money penalty for any repeated or willful violations of section 6 or 7, in an amount not to exceed $1,100 for each such violation. No penalty is being assessed as a result of this investigation. If at any time in the future your client is found to have violated the monetary provisions of the FLSA, it will be subject to such penalties.

Id.

Rhea Lana sued DOL, asserting that its decision to classify consignors/volunteers as employees constituted final agency action subject to judicial review under Section 704 of the APA. Rhea Lana contends that compliance would force " immediate, significant changes to [its] businesses" based on an incorrect interpretation of the FLSA and relevant judicial precedent. Id. ΒΆ 45. The Department filed a motion to dismiss for lack of subject matter jurisdiction and failure to state a claim, arguing that its determination letters do not qualify as final ...


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