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

United States District Court, District of Columbia

September 26, 2017

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

          MEMORANDUM OPINION

          CHRISTOPHER R. COOPER UNITED STATES DISTRICT JUDGE

         Under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et seq., employees are entitled to earn a minimum wage for the hours they work. Plaintiff Rhea Lana, Inc. is a for-profit business that hosts semi-annual consignment sales of used children's clothing and merchandise, relying on the labor of its “consignor/volunteers” to help organize and run these events. In 2013, the Department of Labor investigated whether these volunteers, who were offered early access to shop the sales merchandise, qualified as employees under the FLSA. The Department ultimately determined that they were employees and thus entitled to back wages for their past labor. The agency cautioned Rhea Lana that if it continued these employment practices it could be subject to civil penalties in the future for violating the FLSA's requirements. In response, Rhea Lana filed suit under the Administrative Procedure Act (“APA”), 5 U.S.C. § 706(2)(A), challenging the Department's determination as arbitrary and capricious. The parties have both moved for summary judgment. Finding that the Department applied the correct legal test and that the record adequately supports its employee determination, the Court will grant summary judgment in the Department's favor.

         I. Background

         In 1997, Rhea Lana Rhiner hosted her first consignment sale out of her living room. Twenty years later, the company has achieved nationwide recognition as a leader in the consignment-sales industry. Plaintiffs Rhea Lana, Inc., and Rhea Lana Franchise Systems, Inc. (collectively “Rhea Lana”) are both incorporated in Arkansas, where the former continues to manage the original consignment sales while the latter franchises the consignment event model across the country. Pl.'s Mem. Supp. Cross-Mot. Summ. J & Opp'n (“Pl.'s Opp'n”) 6.

         For each consignment sale, Rhea Lana is responsible for leasing space, providing racks and tables for displaying the merchandise, advertising, and performing administrative tasks related to the week-long sales. J.A. 122. Families pay a flat fee of $9.50 to consign their used children's items at a particular sale and receive 70% of the profits from the sale of their items, with the remaining 30% going to Rhea Lana. J.A. 162. The day-to-day operations of the sale are carried out by managers paid by Rhea Lana and by consignors who volunteer for five-hour shifts (“consignor/volunteers” or “volunteers”) to help out with such tasks as pre-sale preparations, working the cash register, setting up display racks, re-stocking the merchandise, assisting customers during the sale, or sorting items and cleaning up after a sale has concluded. J.A. 126-27. Most of the tasks that consignor/volunteers perform require little instruction from managers, with the exception of working the cash register. J.A. 127-28.

         After set-up, the sale opens for “early shoppers, ” the consignor/volunteers who have signed up to prepare for or staff the sale. J.A. 126. How far in advance of the general public a specific consignor/volunteer is permitted to shop depends on the amount of time he or she has committed to prepare for or staff the sale: working one five-hour shift, for instance, permits the volunteer to access the sale before the general public whereas those working four five-hour shifts are allowed to access the sale before all other volunteers and the public. J.A. 164-65. Once the early shopping period ends, the sale opens to the general public. J.A. 126. On the last day of the sale, the consignors have the option of selling any remaining items for 50% of the listed price. J.A. 164. Once the sale concludes, the consignor/volunteers sort the leftover items and return them to the appropriate consignor. J.A. 155.

         In late 2012, the Arkansas branch of the U.S. Department of Labor's Wage and Hour Division (“WHD”) initiated an investigation of Rhea Lana's labor practices from January 28, 2011 to January 27, 2013. J.A. 218. In May 2013, the Department met with Rhea Lana to discuss its conclusion that the company's consignor/volunteers qualified as employees under the FLSA and were entitled to back wages. J.A. 4. In August 2013, WHD District Director Robert Darling sent a letter to Rhea Lana consignor/volunteers informing them that they have a “private right under the FLSA to bring an independent suit to recover any back wages due.” J.A. 245. Later that month, District Director Darling sent a “Final Determination Letter” to Rhea Lana indicating that the Department's investigation had concluded and that Rhea Lana was in violation of the FLSA for “fail[ing] to pay [volunteers] at least the applicable minimum wage for all hours worked.” J.A. 239. While the Department chose not to pursue any enforcement actions at that time, it warned Rhea Lana that it could be subject to civil penalties if it failed to comply with FLSA requirements going forward. Id.

         Rhea Lana filed suit in January 2014 challenging the Department's determination as arbitrary and capricious under the APA. This Court originally dismissed the action on the ground that there was no final agency action to review because the Department's determination letter imposed no legal obligations on Rhea Lana other than to obey the law. See Rhea Lana v. U.S. Dep't of Labor, 74 F.Supp.3d 240 (D.D.C. 2014). The D.C. Circuit, however, reversed, holding that the August 23, 2013 Final Determination Letter constituted final agency action subject to arbitrary and capricious review. Rhea Lana v. Dep't of Labor, 824 F.3d 1023, 1031-32 (D.C. Cir. 2016). On remand, the Department and Rhea Lana filed cross-motions for summary judgment. The Court heard oral argument on June 21, 2017.

         II. Legal Standard

         Summary judgment may be granted if “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A fact is material if it is capable of affecting the outcome of litigation. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). A dispute is genuine if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Id. Courts have recognized that summary judgment is the proper stage for determining whether, as a matter of law, an agency action is supported by the administrative record and is consistent with the APA. Richards v. INS, 554 F.2d 1173, 1777 (D.C. Cir. 1977).

         The APA provides that the Court “shall . . . hold unlawful and set aside agency action, findings, and conclusions found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.” 5 U.S.C. § 706(2)(A). The scope of arbitrary and capricious review is narrow and the Court is not to “substitute its judgment for that of the agency.” Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). An agency decision is arbitrary and capricious where (1) the agency has “relied on factors which Congress has not intended it to consider, ” (2) the agency has “entirely failed to consider an important aspect of the problem, ” (3) the agency has “offered an explanation for its decision that runs counter to the evidence before the agency, ” or (4) the agency decision “is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.” Id. In contrast, if the agency has “examine[d] the relevant data and articulate[d] a satisfactory explanation including a ‘rational connection between the facts found and the choice made, '” then the Court must uphold the agency's action. Id. (citation omitted).

         In reviewing an agency's action, the Court is limited to considering the administrative record, Holy Land Found. for Relief & Dev. v. Ashcroft, 333 F.3d 156, 160 (D.C. Cir. 2003), and the party challenging an agency's action bears the burden of proof, City of Olmstead Falls v. FAA, 292 F.3d 261, 271 (D.C. Cir. 2002).

         III. Analysis

         The Department justifies its determination that Rhea Lana volunteers qualified as employees on two independent grounds: first, the results of its factual investigation and second, its longstanding interpretation of the FLSA. See Def.'s MSJ 2-3. With respect to the first justification, the Department points to the following factors that support its employee determination: Rhea Lana volunteers expected early access shopping benefits in exchange for their work; Rhea Lana received an immediate advantage from the volunteers' work; the nature of the work was consistent with an employer-employee relationship; and Congress intended for FLSA's protections to be interpreted broadly in favor of workers' rights. See id. at 11-19. Alternatively, the Department relies on its decades-old agency guidance-in the form of opinion letters-laying out its ...


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