Alabama Education Ass'n v. Chao (455 F.3d 386, 2006)

Opinion for the Court filed by Chief Judge GINSBURG.

GINSBURG, Chief Judge.

The Secretary of Labor appeals the decision of the district court granting summary judgment in favor of the Alabama Education Association, the Delaware Federation of Teachers, and 37 like organizations representing public sector employees, primarily public school teachers. After holding fast to one reading of § 3(j)(5) of the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA), 29 U.S.C. § 402(j)(5), for more than 40 years, the Department reconsidered and adopted an alternative interpretation under which wholly public sector labor organizations for the first time could be subject to the financial reporting requirement of the Act.

Applying the familiar two-step analysis in Chevron, U.S.A., Inc. v. Natural Re sources Defense Council, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), we conclude the district court erred in holding the Department’s new interpretation was inconsistent with the Act. Because reasonable readings of § 3(j)(5) are advanced by each of the parties, we cannot say the “Congress had an intention on the precise question at issue,” Chevron, 467 U.S. at 843 n. 9, 104 S.Ct. 2778; nor can we say the Department’s revised reading of § 3(j)(5) is not a “permissible” one, id. at 843, 104 S.Ct. 2778. We order the matter remanded to the agency nonetheless because “the Department did not provide a reasoned explanation for its new policy.” AFL-CIO. v. Brock, 835 F.2d 912, 913 (D.C.Cir.1987).

I. Background

The Congress enacted the LMRDA, 29 U.S.C. § 401 et seq., in order to “eliminate or prevent improper practices on the part of labor organizations.” Id. § 401(c). To that end, the Act requires “[e]very labor organization” annually to provide the Department with information “in such detail as may be necessary accurately to disclose [its] financial condition and operations.” Id. § 431(b); see 29 C.F.R. Part 403 (describing the required annual reports).

A. “Labor Organizations” under the LMRDA

Two interrelated provisions establish the criteria upon which an entity is deemed a “labor organization” subject to the disclosure requirements of the Act. Subsection 3(i), 29 U.S.C. § 402(i), states:

“Labor organization” means a labor organization engaged in an industry affecting commerce and includes [1] any organization of any kind ... so engaged in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning grievances [etc.] and [2] any conference, general committee, joint or system board, or joint council so engaged which is subordinate to a national or international labor organization, other than a State or local central body.

The definition and two examples set forth in § 3(i) are supplemented by § 3(j), 29 U.S.C. § 402(j), which provides:

A labor organization shall be deemed to be engaged in an industry affecting commerce if it—

(1) is the certified representative of employees under the provisions of the National Labor Relations Act ... or the Railway Labor Act ...; or

(2) although not certified, is a national or international labor organization or a local labor organization recognized or acting as the representative of employees of an employer or employers engaged in an industry affecting commerce; or

(3) has chartered a local labor organization or subsidiary body which is representing or actively seeking to represent employees of employers within the meaning of paragraph (1) or (2); or

(4) has been chartered by a labor organization representing or actively seeking to represent employees within the meaning of paragraph (1) or (2) as the local or subordinate body through which such employees may enjoy membership or become affiliated with such labor organization; or

(5) is a conference, general committee, joint or system board, or joint council, subordinate to a national or international labor organization, which includes a labor organization engaged in an industry affecting commerce within the meaning of any of the preceding paragraphs [(l)-(4)] of this subsection, other than a State or local central body.

As the quoted text makes clear, the term “labor organization” is implicitly limited by the terms “employer” and “employee.” As defined in § 3(e), the term “employer” does not include “any State or political subdivision thereof.” 29 U.S.C. § 402(e). The term “employee,” as used in §§ 3(i) and (j), includes only “individually] employed by an employer,” id. § 402(f), that is, employees in the private sector. Although the terms “employer” and “employee” appear in both §§ 3(i) and (j), neither appears in the second illustrative clause of § 3(i) or in § 3(j)(5).

Since 1963 the Department has held, with respect to the first clause of § 3(i), that a “labor organization composed entirely of employees of ... governmental entities excluded by section 3(e) [is not] a labor organization for purposes of the Act.” 29 C.F.R. § 451.3(a)(4). With respect to the second clause of § 3(i), however, the Department has made clear that, “[r]egardless of whether it deals with employers [or] is composed of employees, any conference, general committee, joint or system board, or joint council engaged in an industry affecting commerce and which is subordinate to a national or international labor organization is a ‘labor organization’ for purposes of the Act.” 29 C.F.R. § 451.3(b); 28 Fed.Reg. 14,388, 14,388 (Dec. 27,1963).

B. The Rulemaking

In December 2002 the Department proposed to adopt a rule expanding the range of organizations subject to the annual reporting requirement of the LMRDA. Labor Org. Annual Fin. Reports, 67 Fed. Reg. 79,280 (Dec. 27, 2002) (notice of proposed rulemaking (NPRM)). Until then, the Department had read the final clause of § 3(j)(5) (“which includes a labor organization engaged in an industry affecting commerce within the meaning of [§§ 3(j)(l)-(4) ]”) (hereinafter the “which includes ...” clause), as modifying the phrase “conference, general committee, joint or system board, or joint council.” Under that reading, a “conference,” etc., even if “subordinate to a national or international labor organization,” was not subject to the LMRDA unless it represented private sector “employees” in a manner defined in any one of the four paragraphs at §§ 3(j)(l)-(4). In other words, any labor organization composed solely of public employees had no statutory “employees,” was not a “labor organization” subject to the Act, and therefore did not have to file annual financial reports with the Department of Labor.

In 2002, however, the Department proposed to amend the instructions for annual reporting to state that “ ‘any conference, general committee, joint or system board, or joint council’ that is subordinate to a national or international labor organization will be required to file an annual report.” 67 Fed.Reg. at 79,284. Underlying this change was the Department’s proposal to read the “which includes ...” clause of § 3(j)(5) as modifying the phrase immediately preceding it — “subordinate to a national or international labor organization.” That reading of § 3(j)(5) makes a “conference” et al. with solely public sector members subject to the LMRDA if the conference is subordinate to a “national or international labor organization” that is subject to the Act.

The Department explained it was amending its filing requirements in part to adopt the holding of the Ninth Circuit in Chao v. Bremerton Metal Trades Council, AFL-CIO, 294 F.3d 1114 (2002), a suit the Department brought under the LMRDA on behalf of a federal employee alleging the Bremerton Council had not followed certain election procedures prescribed by the Act. Although the Council had both private and public sector members, it argued it was not a “labor organization” under § 3(i) because it did not “bargain with any non-federal employers.” Id. at 1117. In resolving the issue under § 3(j)(5), the court stated: “We must decide not whether the Bremerton Council bargains directly with any private employers but, instead, whether the Metal Trades Department, the organization to which the Bremerton Council is subordinate, is engaged in an industry affecting commerce.” Id. Because the Metal Trades Department was so engaged and was a “labor organization” under the LMRDA, the court concluded the Bremerton Council, as a subordinate body, was also subject to the Act. Id. at 1118.

Prefacing its revised reading of § 3(j)(5) and related disclosure proposals in the NPRM, the Department stated:

Labor organizations also have changed tremendously since the enactment of the LMRDA in 1959. There are now far fewer small, independent unions and more large unions affiliated with a national or international body .... In fact, many large unions today resemble modern corporations in their structure, scope and complexity .... Moreover, just as in the corporate sector, there have been a number of financial failures and irregularities involving pension funds and other member accounts maintained by labor organizations. These failures and irregularities result in direct financial harm to union members. If the members of labor organizations had more complete, understandable information about their unions’ financial transactions, investments and solvency, they would be in a much better position than they are today to protect their personal financial interests and exercise their democratic rights of self-governance.

67 Fed.Reg. at 79,280-81.

After issuing the NPRM, the Department alerted certain organizations they might be newly required to file annual reports. Among the organizations notified were the appellee state education associations (SEAs) and state federations of teachers (SFTs).

By their own account, each of the SEAs now before us is “composed entirely of individual [public] employees who hold direct membership,” and whom the “SEA represents ... in dealing with their employers” concerning grievances, wages, hours, and other conditions of employment. Each SEA is affiliated with the National Education Association (NEA), which, because it has private as well as public sector members, is subject to the LMRDA.

The SFTs describe themselves as “intermediate state level union organizations that have only public sector members.” Like the SEAs, they “do not ‘deal with’ private sector employers.” The SFTs, however, are affiliated with the American Federation of Teachers, which is in turn a member of the American Federation of Labor and Congress of Industrial Organizations; both the AFT and the AFL-CIO are national or international “labor organizations” subject to the Act. Because, under the Department’s proposed interpretation of § 3(j)(5), the SEAs and SFTs may be deemed “subordinate to” a “labor organization” and therefore subject to the LMRDA, each group brought an action in the district court seeking to enjoin the Department from promulgating and enforcing its revised reading of § 3(j)(5).

While those suits were pending in the district court, the Department adopted the proposed rule. See Labor Org. Annual Fin. Reports, 68 Fed.Reg. 58,374 (Oct. 9, 2003) (Final Rule). In so doing the Department considered comments submitted by the NEA, the AFL-CIO, and others. Although the Department recognized its revised interpretation of § 3(j)(5) “represent[ed] a departure from previous court decisions and the Department’s prior administration of the Act,” it nonetheless maintained its new approach, along with that taken by the court in Bremerton, was “the correct reading of the statutory language.” 68 Fed.Reg. at 58,384. The Department acknowledged that the Congress intended “to exempt ‘wholly public sector’ labor organizations from the coverage of the Act,” see 29 C.F.R. § 451.3(a)(4), but stated: “The Bremerton court found that an intermediate labor organization is not ‘wholly public sector’ and exempt from the Act where it is subordinate to a parent organization that meets the definition of a labor organization engaged in an industry affecting commerce.” 68 Fed.Reg. at 58,-384.

Thereafter the district court consolidated the appellees’ two pending suits, granted summary judgment for the SEAs and SFTs, and enjoined the Department from enforcing the new rule. See Ala. Educ. Ass’n v. Chao, Nos. Civ. A. 03-0253, 03-0682, 2005 WL 736535 (D.D.C. Mar.31, 2005). Applying Chevron step one, the district court held the Department’s new interpretation of § 3(j)(5) was “contrary to the plain meaning of the statute, its legislative history, and the congressional purpose behind the law.” Id. at *9, 2005 WL 736535. In addition, it held the Department’s reliance upon Bremerton was misplaced because that decision “was too limited in its analysis to constitute persuasive precedent.” Id. Having rejected the Department’s revised reading of § 3(j)(5), the district court did not reach, among other things, what it means to be “subordinate to a national or international labor organization” and whether the plaintiff SEAs and SFTs were in fact so subordinate.

II. Analysis

On appeal the Department contends its revised reading of the LMRDA is entitled to deference under Chevron because § 3(j)(5) is, at the very least, ambiguous and its current interpretation of that provision is supported by a reasoned analysis. The SEAs argue Chevron is inapplicable because the Department has no authority under the Act to “interpret” any subsection of § 3, and both the SEAs and the SFTs disagree with the Department on the merits of its new interpretation of § 3