D.C. Circuit Review – Reviewed: A Walk in the Wide, Wide World

by Aaron Nielson — Friday, Sept. 9, 2016@Aaron_L_Nielson

Each week I blog about the D.C. Circuit. There is a reason for this. In today’s world, we are flooded with commentary about the Supreme Court—and the law of diminishing returns is real. Thus, although the D.C. Circuit is (probably) less important than the Supreme Court, there is more “bounce to the ounce” in covering it. That said, the D.C. Circuit is not the only court that matters. The country is full of interesting courts!* So this week I’ve decided to focus my attention on the D.C. Circuit’s relationship with other eminent tribunals.

For instance, one of the most important “admin law” opinions this week comes from the Ninth Circuit: the denial of rehearing en banc in Oregon Restaurant & Lodging Ass’n v. Perez. It is not often to see ten—ten!—judges dissent. Indeed, it is not possible anywhere else. Oregon Restaurant concerns a question under the Fair Labor Standards Act: does a tip pool comprised of both customarily-tipped employees (e.g., the wait staff) and other employees (e.g., cooks) violate Section 203(m) of the FLSA for an employer that does not take a tip credit?

(Brace yourself: understanding this case will take some time. Sorry, that’s admin law.)

Here is the relevant statutory language:

In determining the wage an employer is required to pay a tipped employee, the amount paid such employee by the employee’s employer shall be an amount equal to —

(1) the cash wage paid such employee which for purposes of such determination shall be not less than the cash wage required to be paid such an employee on August 20, 1996; and

(2) an additional amount on account of the tips received by such employee which amount is equal to the difference between the wage specified in paragraph (1) and the wage in effect under section 206(a)(1) of this title.

The additional amount on account of tips may not exceed the value of the tips actually received by an employee. The preceding 2 sentences shall not apply with respect to any tipped employee unless such employee has been informed by the employer of the provisions of this subsection, and all tips received by such employee have been retained by the employee, except that this subsection shall not be construed to prohibit the pooling of tips among employees who customarily and regularly receive tips.

The Ninth Circuit addressed this language in Cumbie v. Woody Woo, Inc., 596 F.3d 577 (2010). There, per Judge O’Scannlain, it held that such a scheme is lawful. After all, “the first sentence states that an employer must pay a tipped employee an amount equal to (1) a cash wage of at least $2.13, plus (2) an additional amount in tips equal to the federal minimum wage minus such cash wage.” This means “an employer must pay a tipped employee a cash wage of at least $2.13, but if the cash wage is less than the federal minimum wage, the employer can make up the difference with the employee’s tips (also known as a ‘tip credit’).” Next, “the second sentence clarifies that the difference may not be greater than the actual tips received. Therefore, if the cash wage plus tips are not enough to meet the minimum wage, the employer must ‘top up’ the cash wage.” Together “these two sentences provide that an employer may take a partial tip credit toward its minimum-wage obligation.”

But then comes the third sentence, which states that the first two sentences do not apply—“i.e., the employer may not take a tip credit”—unless the employer (1) informs the employee of the tip credit and (2) “allow[s] the employee to keep all of her tips, except when the employee participates in a tip pool with other customarily tipped employees.” According to O’Scannlain, this language means that an employer is free to use a tip pool comprised of all employees so long as the employer does not also take a tip credit. As O’Scannlain put it, “[t]he FLSA does not restrict tip pooling when no tip credit is taken. Therefore, only the tips redistributed to Cumbie from the pool ever belonged to her, and her contributions to the pool did not, and could not, reduce her wages below the statutory minimum.” In other words, because the employee received the full minimum wage, plus a portion of the tips, the employer did not violate the FLSA.

Afterwards, however, the Department of Labor promulgated a rule extending Section 203(m)’s prohibition to the sort of arrangement in Cumbie. And then the Ninth Circuit—per Judge Pregerson—upheld that regulation in Oregon Restaurant. To do this, the panel relied on Chevron: “we conclude that step one of the Chevron analysis is satisfied because the FLSA is silent regarding the tip pooling practices of employers who do not take a tip credit.” The word “silent” is what matters in that sentence. According to Pregerson’s reading of Supreme Court precedent (with particular focus on Christensen v. Harris County), if a statute is merely silent as to a particular issue, there remains “room for agency discretion.” The court then concluded that this regulation was reasonable under Chevron Step Two.

This holding prompted a fierce dissent from Judge Randy Smith (“Colleagues, even if you don’t like circuit precedent, you must follow it”) and then Judge O’Scannlain’s equally fiery dissent from rehearing en banc (“Because the panel majority reads our precedents out of existence, and opens not one, but two circuit splits in the process, I respectfully dissent from our refusal to rehear these consolidated cases en banc”).

And now, at last, we come to the D.C. Circuit’s role in all of this. (Remember, this is a blog post about the D.C. Circuit.) In particular, Judge O’Scannlain’s dissent relies extensively on D.C. Circuit precedent:

As the D.C. Circuit has explained, “[w]ere courts to presume a delegation of power absent an express withholding of such power, agencies would enjoy virtually limitless hegemony, a result plainly out of keeping with Chevron and quite likely with the Constitution as well.” Ry. Labor Execs. Ass’n v. Nat’l Mediation Bd., 29 F.3d 655, 671 (D.C. Cir. 1994) (en banc) (as amended); id. at 659 (“[T]he Board would have us presume a delegation of power from Congress absent an express withholding of such power. This comes close to saying that the Board has the power to do whatever it pleases merely by virtue of its existence, a suggestion that we view to be incredible.”); id. at 671 (“To suggest, as the Board effectively does, that Chevron step two is implicated any time a statute does not expressly negate the existence of a claimed administrative power (i.e. when the statute is not written in ‘thou shalt not’ terms), is both flatly unfaithful to the principles of administrative law . . . , and refuted by precedent.”); see also Aid Ass’n for Lutherans v. U.S. Postal Serv., 321 F.3d 1166, 1174–75 (D.C. Cir. 2003) (“[T]he Postal Service’s position seems to be that the disputed regulations are permissible because the statute does not expressly foreclose the construction advanced by the agency. We reject this position as entirely untenable under well- established case law.”); Motion Picture Ass’n of Am., Inc. v. FCC, 309 F.3d 796, 805 (D.C. Cir. 2002) (same).

So that is one aspect of the D.C. Circuit’s relationship with the rest of the judiciary: other circuit courts look to the D.C. Circuit for guidance on administrative law. To be sure, another court’s analysis may diverge from the D.C. Circuit’s approach. But judges across the country pay attention to what the D.C. Circuit says.

The D.C. Circuit, of course, has a different role within the circuit itself. And this week the D.C. Circuit gave the “D.D.C.” some advice: change your local rules.

In Scenic America, Inc. v. Dep’t of Transportation, Judge Wilkins (joined by Judges Pillard and Ginsburg) dismissed Scenic America’s challenge to a Federal Highway Administration “guidance memorandum.” The memo interpreted the prohibitions against “intermittent or flashing or moving lights” in federal-state agreements to not bar digital billboards that meet “certain timing and brightness requirements.” Wilkins determined Scenic America lacked standing because a favorable judgment would not redress its injury. Without evidence that vacating the guidance would change anything in the real world, Scenic’s argument was too speculative.

This case is interesting because it addresses an underappreciated aspect of standing: our standing doctrines must be reconciled with our pleading requirements. At the beginning of a case, it may be enough to just allege “injury resulting from the defendant’s conduct.” But as the case progresses, the burden increases—the plaintiff must “actually prove those allegations.” Thus, at summary judgment, “if, upon review of the evidence, the court determines that the plaintiff has not introduced sufficient evidence into the record to at least raise a disputed issue of fact as to each element of standing, the court has no power to proceed and must dismiss the case.” Here, the defendants challenged standing at the motion to dismiss stage and lost. They did not raise the issue again at summary judgment. On appeal, however, the D.C. Circuit concluded there was no standing.

Here is the key point: in the district court, the plaintiffs were not required by the local rules to present evidence at summary judgment in support of their standing. Even so, Judge Wilkins concluded that these plaintiffs were not “deprived of a fair and full opportunity to make a record of its standing in the district court” because, in this particular case, they were on notice that standing was questionable. The D.C. Circuit, however, then gave some general advice to the district court: “Because the plaintiff has the burden to establish the evidentiary basis for its standing at the summary judgment stage in every case, just as it has the burden to plead sufficient facts at the motion to dismiss stage in every case, the District Court may wish to consider amending its local rules to provide that the plaintiff include its evidentiary basis for standing in the statement of material facts that every party is required to file either in support of, or in opposition to, a motion for summary judgment.”

It will be interesting to see what happens next. (Note, there is more going on in this case. Check it out.)

Finally, the D.C. Circuit also has a relationship with the Supreme Court. Rothe Development, Inc. v. DOD is a case that may attract the Justices’ attention. Not only is the dissent longer than the majority, the case involves allegedly unconstitutional racial classifications by the federal government. Judge Pillard (joined by Judge Griffith) rejected the challenge; Judge Henderson dissented.

Here is the question: does the Small Business Administration’s “business development program” violate equal protection by favoring certain races? “The challenged statute authorizes the Small Business Administration (SBA) to enter into contracts with other federal agencies, which the SBA then subcontracts to eligible small businesses that compete for the subcontracts in a sheltered market. Businesses owned by ‘socially and economically disadvantaged’ individuals are eligible to participate in the … program. The statute defines socially disadvantaged individuals as persons ‘who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities.’”

Both parties and the district court agreed that this statute is not race-neutral. The D.C. Circuit, however, disagreed with all of them: “the provisions of the Small Business Act that Rothe challenges do not on their face classify individuals by race. Section 8(a) uses facially race-neutral terms of eligibility to identify individual victims of discrimination, prejudice, or bias, without presuming that members of certain racial, ethnic, or cultural groups qualify as such.” To be sure, “the SBA’s regulation implementing the 8(a) program does contain a racial classification in the form of a presumption that an individual who is a member of one of five designated racial groups (and within them, 37 subgroups) is socially disadvantaged.” But the statute does not, and the plaintiff only challenged the statute—not the regulation.

Judge Henderson, who dissents a lot, would have none of this. Her dissent begins this way: “Judges must beware of hard constructions and strained inferences; for there is no worse torture than the torture of the laws. Sir Francis Bacon.” 27 pages follow.

Now, it does not appear that there is a circuit split. (At least the Court does not flag one.) But this issue eventually may end up before the Supreme Court. And if the Justices do consider it, no doubt the D.C. Circuit’s views will matter to them too.

 

* Because I clerked on both the D.C. Circuit and Fifth Circuit, students often ask me which clerkship was more enjoyable. That is a hard question—it is like asking which of my children I love most. But if you insist, here is my answer: Violet. (I kid! Thank goodness my children have better things to do than read my blog posts.)

 

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About Aaron Nielson

Professor Nielson is an associate professor at Brigham Young University Law School, where he teaches and writes in the areas of administrative law, civil procedure, federal courts, and antitrust. He currently serves as a public member of the Administrative Conference of the United States, a federal agency that studies the administrative process and makes recommendations on ways to improve it. He also co-chairs the Rulemaking Committee of the American Bar Association’s Section of Administrative Law & Regulatory Practice. Previously he chaired the Section's Antitrust & Trade Regulation Committee. Before joining the academy, Professor Nielson was a partner in the Washington, D.C. office of Kirkland & Ellis LLP (where he remains of counsel). He also has served as a law clerk to Justice Samuel A. Alito, Jr. of the U.S. Supreme Court, Judge Janice Rogers Brown of the U.S. Court of Appeals for the D.C. Circuit, and Judge Jerry E. Smith of the U.S. Court of Appeals for the Fifth Circuit. Follow him on Twitter @Aaron_L_Nielson.

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