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Court orders DOL ARB to rule on whether federal contractors may initiate administrative action against OFCCP

January 22nd, 2015  |  Cynthia L. Hackerott

Putting the brakes on federal court proceedings in two consolidated cases involving a dispute between the OFCCP and a group of related federal contractors, a federal district court in Louisiana has remanded one of the cases back to the Department of Labor’s (DOL) Administrative Review Board (ARB) to consider the contractors’ argument that the Administrative Procedure Act (APA) provides private parties with the right to initiate the administrative proceedings authorized by the regulations implementing Executive Order (EO) 11246. In a ruling last year, the ARB found that the DOL’s  Office of Administrative Law Judges (OALJ) lacked subject matter jurisdiction to address claims under the laws enforced by the OFCCP that are brought by any party other than the OFCCP. After dismissing a portion of the claims brought by the companies, and remanding the issue of whether the APA authorizes the OALJ to hear actions initiated by federal contractors, the court administratively closed both cases in the consolidated action pending the ARB’s resolution of that issue. (Entergy Servs, Inc v OFCCP, December 22, 2014, EDLa, dkt nos 14-1524 and 14-1644)

The federal contractor group involved in these two consolidated actions consists of subsidiaries of Entergy Corporation (collectively, “Entergy”), including lead plaintiff Entergy Services, Inc, a Delaware corporation headquarted in New Orleans, that provides administrative services for Entergy Corporation and some of the Entergy subsidiaries. The other Entergy plaintiffs include rate-regulated utilities and rate-regulated producers that supply electricity and gas to customers in Louisiana, Mississippi, Texas, and Arkansas.

Entergy lawsuit. In July 2014, six Entergy subsidiaries sued the DOL and the OFCCP in federal court alleging that the manner in which the OFCCP selected 11 of their establishments for audits violated their Fourth Amendment rights to be free from “unreasonable searches and seizures” because the establishments at issue were selected without reference to a “neutral administrative plan” and without evidence of a current violation of any of the laws enforced by the agency – Executive Order 11246, Section 503 of the Rehabilitation Act and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 – or corresponding regulations. In addition, Entergy sought review of the ARB’s May 2014 decision which held that only the OFCCP, and not federal contractors such as the plaintiffs, can initiate an action with the OALJ.

Administrative proceedings. The ARB ruling at issue was the result of an administrative complaint filed with the OALJ by Entergy on October 26, 2012. In that complaint, Entergy sought declaratory relief, on Fourth Amendment grounds, from compliance reviews at certain of their establishments selected for audit by the OFCCP in May 2012.

Due to various perceived anomalies in the selection of sites for potential audit, Entergy grew concerned that their Fourth Amendment rights were in danger of infringement. Therefore, they objected to each of the OFCCP’s audit scheduling letters and requested that the agency administratively close the audits. In July 2012, Entergy made requests to meet with the OFCCP to express their concerns, but the agency refused to meet with the contractors, and to date, the audits have not been closed. Entergy maintains that the OFCCP has refused to advise them of either the neutral administrative plan which led the OFCCP to select the establishments at issue for potential audit or to advise Entergy of the evidence the OFCCP had, if any, that the companies engaged in conduct that violated one or more of the laws or regulations enforced by the OFCCP.

On August 29, 2012, the OFCCP advised Entergy of the agency’s position that its requests for affirmative action programs and other documents in the scheduling letters are consistent with the Fourth Amendment’s requirements because the requests are limited in scope, relevant in purpose, and specific in directive. Between September and the end of December 2012, the OFCCP issued “notices to show cause” for the establishments at issue. Per the agency’s standard practice, these notices to show cause demanded the contractors to “show cause” as to why the OFCCP should not file an administrative complaint within 30 days that seeks to compel the audits.

On November 27, 2012, a DOL Administrative Law Judge (ALJ) dismissed Entergy’s administrative complaint for lack of subject matter jurisdiction (ALJ No 2013-OFC-1). The ALJ determined that the contractor’s arguments asserting that the OALJ had subject matter jurisdiction over the action, pursuant to the APA and the regulations governing the adjudication of OFCCP matters before the OALJ, were unavailing.

On May 19, 2014, the ARB ruled that the ALJ correctly determined that Entergy’s complaint for declaratory relief was not properly before the OALJ; the ARB found no authorization in the laws enforced by the OFCCP or their implementing regulations empowering any party other than the OFCCP, represented by the DOL Solicitor’s Office, to file a complaint under these laws (ARB No 13-025).

On June 17, 2014, the Department of Justice (DOJ) sent a letter to Entergy’s counsel notifying them that the OFCCP had referred to the matter to the DOJ for consideration of judicial enforcement, unless the Entergy companies indicated that they would acquiescence to a consent decree on specified terms by July 16, 2014.

The Entergy companies did not agree to the consent decree, and filed their federal court compliant on July 1, 2014. In their lawsuit, Entergy asked the court to vacate the ARB’s ruling and remand the matter to back to the department for a hearing and consideration of the claims for declaratory relief on the merits. In the alternative, Entergy requested that the court itself consider their claims for declaratory relief on the merits.

DOJ lawsuit. Sixteen days after the Entergy plaintiffs filed their suit, the DOJ announced its filing of a lawsuit in the same federal district court against Entergy Corporation and seven of its subsidiaries alleging these companies violated the laws enforced by the OFCCP. The DOJ lawsuit, filed on July 17, 2014, alleges that since May 2012, Entergy has refused the OFCCP’s repeated requests to turn over its written affirmative action programs and other records requested as part of the compliance reviews of 11 Entergy locations in Texas, Mississippi and Louisiana. The DOJ seeks a permanent injunction requiring Entergy to comply with the OFCCP’s document requests and related audit obligations.

The Entergy lawsuit against the DOL/OFCCP and the DOJ lawsuit against Entergy were consolidated by the court sua sponte on July 21, 2014. The DOL/OFCCP then moved to dismiss Entergy’s lawsuit, and on December 15, 2014, the court issued a decision addressing this motion. On December 22, 2014, the court issued a follow-up order citing the earlier decision.

Standing to pursue APA claim. The DOL/OFCCP’s first argument for dismissal was based on their assertion that the Entergy plaintiffs’ lacked standing to seek judicial review of the ARB’s  ruling denying them an administrative forum to resolve their Fourth Amendment challenge to the OFCCP’s compliance reviews. The government defendants argued that the plaintiffs failed to establish an actual or imminent injury necessary for standing because they have not, so far, been forced to submit the requested audit documents or otherwise comply with the administrative evaluation and, thus, no “actual” injury resulted. Moreover, the defendants pointed out, in the context of the judicial enforcement action, Entergy will have the opportunity to raise (and, in fact, have done so) whatever defenses it considers appropriate, including its Fourth Amendment claim.

However, the court disagreed. It found that Entergy suffered a procedural injury-in-fact due to the ARB’s failure to provide Entergy a forum to consider their Fourth Amendment challenge to the OFCCP’s conduct in initiating allegedly anomalous (and, thereby, overly burdensome) compliance reviews. Although the DOL/OFCCP attempted to minimize this procedural harm by characterizing it as a “novel” application of standing based on conjecture, the court found that Entergy demonstrated an actual, concrete injury. “That their injury is procedural does not remove it from the reach of constitutional standing where, as here, they allege a constitutional right that is affected by the deprivation of process,” the court wrote. “And the government cannot hide behind its enforcement action.”

Failure to state a claim. In the alternative, the DOL/OFCCP argued that Entergy’s APA claim should be dismissed for failure to state a claim upon which relief may be granted because the ARB’s ruling that it lacked the authority to entertain Entergy’s administrative complaint was correct. Yet, Entergy argued that the ARB’s ruling was erroneous because: (1) the ARB erred in applying 41 C.F.R. §60-30.5(a); (2) the failed to consider Section 208 of EO 11246; and (3) the APA authorizes the administrative adjudication of the Entergy plaintiffs’ action. Noting that, under the APA, an agency’s decision is afforded a strong presumption of validity, the court found that the ARB ruled correctly as to items (1) and (2), but the court remanded the case back the ARB for consideration of Entergy’s argument the APA authorizes federal contractors to initiate a claim with the OALJ.

First, the court found that the plain language of 41 C.F.R. §60-30.5, which governs commencement of administrative complaints, supported the ALJ’s conclusion, affirmed by the ARB, that it lacked subject matter jurisdiction. The regulation provides that, “[t]he Solicitor of Labor, Associate Solicitor for Labor Relations and Civil Rights Regional Solicitors and Regional Attorney upon referral from the Office of Federal Contract Compliance Programs, are authorized to institute enforcement proceedings by filing a complaint and serving the complaint upon the contractor which shall be designated as the defendant. The Department of Labor, OFCCP, [] shall be designated [as] plaintiff.” Since this regulation expressly grants only the OFCCP the authority to file a complaint, the ALJ and ARB did not err in determining that the OALJ lacked subject matter under this regulation to entertain an administrative complaint filed by the target of an OFCCP compliance review seeking declaratory relief from that compliance review.

Second, the court rejected Entergy’s contention that Section 208 of EO 11246 grants the OALJ subject matter jurisdiction to consider administrative complaints filed by federal contractors. The plaintiffs asserted that because Section 208(a) provides that the OALJ, through the Secretary of Labor, has discretion to hold a hearing “for purposes of ‘compliance,’” that section plainly allows for an administrative hearing to adjudicate Entergy’s Fourth Amendment rights. But Entergy offered no authority for their reading of Section 208, and the court concluded that “compliance” appears to refer to hearings instigated by the agency at different stages of the administrative process.

As to the third assertion of error, the court agreed with the plaintiffs, and remanded back the case back to the ARB for consideration of the Entergy’s argument that the APA’s authorizes the OALJ to hear actions initiated by federal contractors. According to Entergy, the APA (at 5 U.S.C. §554(b)) authorizes “private persons” to be “moving parties” that may initiate administrative adjudication, and this APA authorization extends to “every case of adjudication required by statute….” (see, 5 U.S.C. §554(a)). That APA authorization applies here because EO 11246 authorizes adjudication for both enforcement and compliance purposes, the plaintiffs’ argued. The DOL/OFCCP countered that the APA authorization cannot apply here because EO 11246 is not technically a “statute” as expressly required by the language of the APA. In any event, the court ruled that “[t]his argument clearly needs to be more thoroughly considered by the ARB.”

Judicial declaration on Fourth Amendment claim. Aside from their APA claim, Entergy also sought a judicial declaration that the OFCCP’s compliance reviews and their attendant requests for information violate the Fourth Amendment. But the DOL/OFCCP asserted that the court lacked jurisdiction to issue such a declaration, and put forth two arguments in support of their assertion: (1) sovereign immunity applies, and (2) the plaintiffs lack Article III standing.

Sovereign immunity. Section 702 of the APA generally waives sovereign immunity for suits against the United States that, like this one, seek “relief other than monetary damages.” Although the DOL/OFCCP did not dispute that an express waiver of sovereign immunity exists in the APA at §702, they argued that, under Fifth Circuit precedent, the APA’s waiver of sovereign immunity does not apply to a constitutional claim absent final agency action, and that such action has not occurred in this case because the DOL ARB did not reach a final decision regarding the constitutionality of the compliance reviews or attendant document requests. Entergy countered that, even if the government’s interpretation of Fifth Circuit precedent were correct, the OFCCP’s “notices to show cause” constitute a final agency action.

Following a lengthy discussion of how Fifth Circuit precedent is split and “confusing” regarding whether a final agency action (and what constitutes such action) is required in order for a waiver of sovereign immunity under the APA to occur, the district court found resolution of that issue was not necessary because Entergy presented a persuasive alternate argument to show that sovereign immunity had been waived.  Citing the Fifth Circuit’s 1980 decision in United States v Irby, the court explained that, when the sovereign sues, it waives immunity as to claims of the defendant arising out of the same transaction or occurrence which is the subject matter of the government’s suit. Thus, by the DOJ’s filing of an enforcement action, the government waived its sovereign immunity related to claims based on the same transactions, the district court ruled. The DOL/OFCCP argued that Irby should be not extended to cases where, as here, a court sua sponte consolidates a lawsuit initiated by a private party (the Entergy action) with an enforcement action filed by the government (the DOJ lawsuit). But the court found that it was not credible for the DOL/OFCCP to assert that the Entergy plaintiffs’ declaratory judgment claim is not part of the same transaction as those defenses Entergy has raised in response to the DOJ’s enforcement action on behalf of the OFCCP.

Standing to pursue judicial declaratory relief claim. Turing to the government defendants’ challenge to the plaintiffs’ standing to pursue their alternative claim for judicial declaratory relief, the court first noted that the same constitutional standing principles discussed earlier in regard to the APA claim applied equally here. However, the nature of the injury for the purposes of the request for declaratory relief differs from the procedural injury alleged with respect the APA claim.

Entergy argued that the government’s repeated threats to immediately file suit if the plaintiffs failed to comply with its demands created a prospective injury sufficient to establish Article III standing, even though the DOL/OFCCP has not yet filed an administrative action against Entergy. They were not required to expose themselves to liability before bringing suit to challenge the basis for the threat, the plaintiffs asserted. Agreeing, the district court cited the U.S. Supreme Court’s 2014 decision in Susan B. Anthony List v Driehaus for the proposition that the mere threat of enforcement action is sufficient to establish an injury-in-fact for the purpose of Article III standing. In this case, Entergy’s course of conduct in the face government threats of enforcement action – their refusal to comply with the audit review demands on the ground that the compliance would violate and waive their Fourth Amendment rights – was sufficient to constitute an injury-in-fact, the court concluded.

Order. In sum, the court denied the DOL/OFCCP’s motion to dismiss in part finding that (1) the Entergy plaintiffs had standing to pursue both their APA claim and their declaratory relief claim, and (2) sovereign immunity had been waived with respect to the declaratory relief claim. The motion was denied without prejudice with respect to the APA authorization aspect of the APA claim pending the ARB’s resolution. The motion to dismiss was granted in part because (1) Entergy failed to state an APA claim, insofar as the ARB did not act contrary to law in its application of 41 C.F.R. §60-30.5(a); and (2) the ARB did not err in failing to consider Section 208 of EO 11246. Furthermore, the court remanded the Entergy suit back to the ARB to consider Entergy’s argument that the APA provides private parties with the right to initiate the administrative proceedings authorized by EO 11246. The court directed the ARB to issue, following its consideration of the parties’ arguments, a written decision specifying in full the reasons for its determination. Finally, the court administratively closed the consolidated cases pending the ARB’s resolution of the APA authorization issue.

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