United States District Court, District of Columbia
RHEA LANA, INC. & RHEA LANA'S FRANCHISE SYSTEMS, INC., Plaintiffs,
U.S. DEPARTMENT OF LABOR, Defendant.
CHRISTOPHER R. COOPER UNITED STATES DISTRICT JUDGE
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.
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.
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
“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.
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.
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.
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.
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).
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).
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).
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