UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA

Transcription

1 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA LABNET, INC. d/b/a * WORKLAW NETWORK, et al. * * Civil Action No. 0:16-cv PJS-JSM Plaintiffs * * Judge Patrick J. Schiltz v. * * UNITED STATES DEPARTMENT * OF LABOR, et al. * * Defendants * / PLAINTIFFS MEMORANDUM IN SUPPORT OF MOTION FOR A TEMPORARY RESTRAINING ORDER, OR, IN THE ALTERNATIVE, FOR PRELIMINARY INJUNCTION OR STAY Respectfully submitted, Douglas P. Seaton (#127759) Thomas R. Revnew (# ) Tara Craft Adams (# ) SEATON, PETERS & REVNEW, P.A Metro Boulevard, Suite 500 Minneapolis, MN (952) dseaton@seatonlaw.com trevnew@seatonlaw.com tadams@seatonlaw.com Eric Hemmendinger (MD #02050) (Admitted Pro Hac Vice 4/7/2016) Mark J. Swerdlin (MD #04927) (Admitted Pro Hac Vice 4/7/2016) Parker E. Thoeni (MD # 30250) (Admitted Pro Hac Vice 4/15/16) SHAWE & ROSENTHAL LLP One South Street, Suite 1800 Baltimore, MD (410) eh@shawe.com swerdlin@shawe.com thoeni@shawe.com Counsel for Plaintiffs April 15, 2016

2 TABLE OF CONTENTS TABLE OF AUTHORITIES... iii I. BACKGROUND... 1 II. SUMMARY OF ARGUMENT... 8 III. STANDARD OF REVIEW... 9 IV. ARGUMENT A. Plaintiffs are Likely to Succeed on the Merits The Interpretation is not Entitled to Chevron Deference a. The Interpretation should be set aside under 5 U.S.C. 706(2)(c) because it is contrary to the statute i. The Interpretation eviscerates the advice exemption ii. The Interpretation vastly broadens the scope of reportable activity to include activity outside the scope of the statute iii. The Interpretation invades the confidential attorney-client relationship b. The Interpretation should be set aside under 5 U.S.C. 706(2)(b) because it violates the First Amendment i. The Interpretation must be struck down as a viewpointbased regulation of speech ii. The Interpretation fails to withstand strict scrutiny as a content-based regulation of speech iii. The Interpretation fails to withstand exacting scrutiny as a reporting requirement iv. The Interpretation is void for vagueness... 34

3 c. The Interpretation should be set aside under 5 U.S.C. 706(2)(a) because it is arbitrary and capricious d. The Interpretation is overbroad The Interpretation Violates the Regulatory Flexibility Act B. Plaintiffs will be Irreparably Harmed Absent a Stay or Preliminary Injunction C. The Balance of Equities Tips in Favor of Plaintiffs Because the Department will not be prejudiced by a Stay or Preliminary Injunction D. A Stay or Preliminary Injunction is in the Public Interest V. CONCLUSION ii

4 TABLE OF AUTHORITIES CASES PAGE(S) Am. Bar Ass n v. F.T.C., 430 F.3d 457 (D.C. Cir. 2005)... 11, 20, 24, 25 Bell Atl. Tel. v. FCC, 131 F.3d 1044 (D.C. Cir. 1997) Brown v. Entm t. Merchs. Assoc., 131 S. Ct (2011) Buckley v. Valeo, 424 U.S. 1 (1976)... 26, 31, 34 Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984)... passim Christian Legal Soc. Chapter of the Univ. of Cal., Hastings Coll. of the Law v. Martinez, 561 U.S. 661 (2010) Citizens United v. Fed. Election Comm'n, 558 U.S. 310 (2010)... 29, 31, 33, 34 Clarke v. Office of Fed. House. Enter. Oversight, 355 F. Supp. 2d 56 (D.D.C. 2004) DSE, Inc. v. United States, 3 F. Supp. 2d 1464 (D.D.C. 1998) Dataphase Sys., Inc. v. C.L. Sys., Inc., 640 F.2d 109 (8th Cir. 1981) Davis v. Fed. Election Comm n., 554 U.S. 724 (2008) Donovan v. Rose Law Firm, 768 F.2d 964 (1985)... passim iii

5 Douglas v. Wirtz, 353 F.2d 30 (4th Cir. 1965) F.C.C. v. Fox Television Stations, Inc., 132 S. Ct (2012) FCC v. Fox Television Stations, Inc., 556 U.S. 502 (2009)... 37, 38 FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000)... 11, 20 Fed. Election Comm n. v. Mass. Citizens for Life, 479 U.S. 238 (1986) Garyned v. City of Rockford, 408 U.S. 104 (1972) Harris v. Quinn, 134 S. Ct (2014) Home Instead, Inc. v. Florance, 721 F.3d 494 (8th Cir. 2013) Humphreys, Hutcheson and Mosely v. Donovan, 755 F.2d 1211 (6th Cir. 1985) Int l Long Term Care v. Shalala, 947 F. Supp. 15 (D.D.C. 1996) Jones v. N.C. Prisoners' Labor Union, Inc., 433 U.S. 119 (1977) Kolender v. Lawson, 461 U.S. 352 (1983) Legal Servs. Corp. v. Velazquez, 531 U.S. 553 (2001) Leis v. Flynt, 439 U.S. 438 (1979) iv

6 MCI Telecomms. Corp. v. Am. Tel. & Tel. Co., 512 U.S. 218 (1991)... 11, 20, 24 Master Printers Ass n v. Donovan, 699 F.2d 370 (7th Cir. 1983)... 29, 30 Master Printers of Am. v. Donovan, 751 F.2d 700 (4th Cir. 1984) Master Printers of Am. v. Marshall, Nos A and A, 1979 U.S. Dist. LEXIS (E.D. Va. May 9, 1979)... 18, 32 McIntryre v. Ohio Elections Comm n., 514 U.S. 334 (1995) Michigan v. EPA, 268 F.3d 1075 (D.C. Cir. 2001) Minn. Citizens Concerned for Life, Inc. v. Swanson, 692 F.3d 864 (8th Cir 2012) Mohamad v. Palestinian Auth., 132 S. Ct (2012) Mova Pharm. Corp. v. Shalala, 140 F.3d 1060 (D.C. Cir.1998) N. Air Cargo v. U. S. Postal Serv., 674 F.3d 852 (D.C. Cir. 2012)... 9 N.C. Right to Life, Inc. v. Leake, 525 F.3d 274 (4th Cir. 2008) Nat l Treasury Emps. Union v. U.S. Dep t of Treasury, 838 F. Supp. 631 (D.D.C. 1993) N. Y. State BarAss n v. F.T.C., 276 F. Supp. 2d 110 (D.D.C. 2003) Nobby Lobby, Inc. v. City of Dallas, 970 F.2d 82 (5th Cir. 1992) v

7 Painting and Drywall Work Pres. Fund v. HUD, 936 F.2d 1300 (D.C. Cir. 1991) Price v. Wirtz, 412 F.2d 647 (5th Cir. 1969) R.J. Reynolds Tobacco Co. v. Food & Drug Admin., 696 F.3d 1205 (D.C. Cir. 2012)... 9 Reed v. Town of Gilbert, Ariz., 135 S. Ct (2015)... 28, 29 Rosenberger v. Rector& Visitors of Univ. of Va., 515 U.S. 819 (1995) Sea-Land Serv. Inc. v. Dep t of Transp., 137 F.3d 640 (D.C. Cir. 1998) Sharpe Holdings, Inc., v. U.S. Dept. of Health and Human Svcs., 801 F.3d 927 (8th Cir. 2105) S. Offshore Fishing Ass n v. Daley, 995 F. Supp (M.D. Fla. 1998) Texas v. Johnson, 491 U.S. 397 (1989) UAW v. Dole, 869 F.2d 616 (D.C. Cir. 1989)... 4, 5, 14, 15 Vill. of Hoffman Estates v. Flipside, 455 U.S. 489 (1982) Wash. Metro. Area Transit Comm'n v. Holiday Tours, Inc., 559 F.2d 841 (D.C. Cir. 1977)... 9 Whitman v. Am. Trucking Ass ns, 531 U.S. 457 (2001)... 11, 20, 24 Wis. Right to Life, Inc. v. Barland, 751 F.3d 804 (7th Cir. 2014) vi

8 United States v. Alvarez, 132 S. Ct (2012)... 27, 33 United States v. Playboy Entm t Grp. Inc., 529 U.S. 803 (2000) United States v. Sindel, 53 F.3d 874 (8th Cir. 1995)... 22, 23 Statutes 5 U.S.C U.S.C U.S.C U.S.C U.S.C passim 26 U.S.C U.S.C U.S.C U.S.C passim 29 U.S.C , 4 29 U.S.C , 36 Regulations 13 C.F.R Labor-Management Reporting and Disclosure Act; Interpretation of the Advice Exemption, 81 Fed. Reg (March 24, 2016)... passim Labor-Management Reporting and Disclosure Act; Interpretation of the Advice Exemption, Notice of Proposed Rulemaking, 76 Fed. Reg (June 21, 2011)... passim vii

9 Rules ALA. RULES OF PROF L CONDUCT R , 22 FLA. RULES OF PROF L CONDUCT R , 22 MASS. RULES OF PROF L CONDUCT R MD. LAWYERS RULES OF PROF L CONDUCT R MINN. RULES OF PROF L CONDUCT R MODEL RULES OF PROF L CONDUCT R , 20, 21, 22, 23 N.Y. RULES OF PROF L CONDUCT R OHIO RULE OF PROF L CONDUCT R NEV. RULE OF PROF L CONDUCT R TEX. DISCIPLINARY RULES OF PROF L CONDUCT Treatises 104 CONG. REC (1958)... 3, 19 Diana Furchtgott-Roth, The High Cost of Proposed Labor Law Regulations, Manhattan Institute Issue Brief #21 (April 2013) S. Rep. No. 1684, 85 th Cong. 2d Sess. 7-9 (1958)... 3, 4 Other Authorities American Bar Ass n Comments Submitted to Dep t Concerning 76 Fed. Reg (September 21, 2011) D.C. Ethics Opinion 214 (1990) Dr. Jo Kaster, Winthrop University, Faculty web page, available at (last visited on April 10, 2016) viii

10 Florida Ethics Opinion 92-5 (1993) Georgia Ethics Opinion 41 (1984) James R. Beaird, Reporting Requirements For Employers and abor Relations Consultants in the Labor Management Reporting and Disclosure Act of 1959, 53 GEO. L. J. 267 (1965)... passim Mass. Ethics Opinion 94-7 (1994) Union Studies on Employer Coercion Lack Credibility and Integrity, U.S. Chamber of Commerce White Paper, available at default/files/reports/0908_unionstudies_coercion.pdf Washington Ethics Opinion 194 (1997) ix

11 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA LABNET, INC. d/b/a * WORKLAW NETWORK, et al. * * Civil Action No. 0:16-cv PJS-JSM Plaintiffs * * Judge Patrick J. Schiltz v. * * UNITED STATES DEPARTMENT * OF LABOR, et al. * * Defendants * / PLAINTIFFS MEMORANDUM IN SUPPORT OF MOTION FOR A TEMPORARY RESTRAINING ORDER, OR, IN THE ALTERNATIVE, FOR PRELIMINARY INJUNCTION OR STAY I. BACKGROUND Section 203(a) of the Labor-Management Reporting and Disclosure Act ( LMRDA ) requires employers to report agreements and payments with a consultant or independent contractor when the object thereof, directly or indirectly, is to persuade employees to exercise or not to exercise, or persuade employees as to the manner of exercising, the right to organize and bargain collectively through representatives of their own choosing. 29 U.S.C. 433(a). This is commonly referred to as the Act s reporting requirement. Employers fulfill this statutory requirement by filing LM-10 forms with the Department of Labor ( the Department ).

12 Section 203(b) of the LMRDA imposes this same reporting requirement on consultants and independent contractors. 29 U.S.C. 433(b). These parties fulfill this statutory requirement by filing LM-20 forms within 30 days of the agreement. Consultants and independent contractors that file LM-20 forms are required to file LM-21 forms annually with the Department. Section 203(c) of the LMRDA carves out an exception from the reporting requirement for advice, stating, in part, that Nothing in this section shall be construed to require any employer or other person to file a report covering the services of such person by reason of his giving or agreeing to give advice to such employer U.S.C. 433(c). This exemption is not limited to legal advice. This is commonly referred to as the advice exemption. Section 204 of the LMRDA emphasizes that the statute is not intended to invade the attorney-client relationship, stating that, Attorneys in good standing in any state are not required to include in any report information lawfully communicated to them by their clients in the course of a legitimate attorney-client relationship. 29 U.S.C The LMRDA was enacted after extensive hearings conducted by a Senate Select Committee on Improper Activities in the Labor Management Field. James R. Beaird, Reporting Requirements For Employers and Labor Relations Consultants in the Labor Management Reporting and Disclosure Act of 1959, 53 GEO. L. J. 267 (1965) (hereafter 2

13 Reporting ). 1 This Committee was focused on nefarious, union-busting middlemen who, in the Committee s words: Flitted about the country on behalf of employers interfering with restraining and coercing employees in the exercise of the right to organize and bargain collectively. Such middlemen set up front committees of employees to discourage unionization or to form company unions. They negotiate sweetheart contracts. Apparently they have been parties to bribery and corruption as well as unfair labor practices. The middlemen paid by management are acting in fact if not in law as management s agents yet an attorney for the National Labor Relations Board testified before the McClellan Committee that the present law is not adequate to deal with such activities. The committee believes that employers should be required to report their arrangements with these union-busting middlemen. Reporting at 271 (citing S. Rep. No. 1684, 85 th Cong. 2d Sess. 7-8 (1958)). The earliest Senate bill to curb these unsavory middlemen required expansive disclosure, but met opposition from the House because of its broad and indefinite terms, with at least one Representative questioning whether a Company providing Christmas hams or coffee breaks to employees would fall under the Act s coverage if the employer influence[d] or affect[ed] employees in their decision to join or not to join a union. Reporting at (citing 104 CONG. REC (1958)). Through amendments and the next two sessions of Congress, the legislative branch debated and narrowed the scope of 1 While law review articles are usually of limited value in statutory construction, Mr. Beaird s article is an important exception. Beaird was an Assistant Solicitor at the Department of Labor and Associate General Counsel of the National Labor Relations Board during the period in which the LMRDA was passed. Reporting at 267, n.1. His seminal article on the subject was published only six years after the legislation was enacted. Thus, most of the article draws from the author s intimate involvement with the LMRDA debates in Congress. This stands in stark contrast to the Department s citation of Subcommittee on Labor-Management Relations, H. Comm. on Education and Labor, Pressures in Today s Workplace (Comm. Print 1980), which could not possibly reflect Congressional intent as to a law passed some 31 years prior. 3

14 the LMRDA, before eventually arriving at its current construction, Section 203(c) and Section 204. Reporting at The first mention of a possible advice exemption was contained in a Senate report, which stated that such an exemption was necessary, [s]ince attorneys at law and other responsible labor-relations advisers do not themselves engage in influencing or affecting employees in the exercise of their rights under the National Labor Relations Act.... Reporting at 293 (citing S. Rep. No. 1684, 85 th Cong. 2d Sess. 8-9 (1958)) (emphasis added). While the precise wording of the advice exemption changed throughout the debate, the final Conference Report stated that Congress intended to grant broad scope to the term advice a conclusion later favorably cited by both the United States Courts of Appeals for the D.C. Circuit and Eighth Circuit in LMRDA cases. UAW v. Dole, 869 F.2d 616, 618 (D.C. Cir. 1989) (Ginsberg, J.); Donovan v. Rose Law Firm, 768 F.2d 964, 973 (1985) (emphasis added). Moreover, the inclusion of Section 204 and its exemption from reporting of information lawfully communicated to [attorneys] by their clients in the course of a legitimate attorney-client relationship evidences Congress s intent to generally protect confidential attorney communications with clients. 29 U.S.C Beaird noted the same problem that confronts the Court today that is, it can be a difficult problem... in interpreting the LMRDA... to draw the line between activities which should be considered advice under Section 203(c) and activities which constitute direct or indirect persuasion under Section 203(b)(1). Reporting at 293. Yet, with the benefit of having lived through the debates in Congress, Beaird wrote that the situation causing the most concern in Congress was not legitimate attorneys like the Plaintiff law 4

15 firms but, rather, where a nefarious middleman operating under a deceptive arrangement with an employer attempted to persuade employees directly or through an agent or through some other indirect means. Id. at 294. Beaird found that a critical factor in determining whether such undertaking was to give advice is whether the employer has retained the right to accept or reject the materials prepared or revised by the consultant[.] Id. at The Department s longstanding Interpretation of the advice exemption, contained in a 1962 Memorandum from then Solicitor of Labor, Charles Donahue ( Donahue Memo ), is consistent with Beaird s view. According to the Donahue Memo, when a consultant or lawyer prepares a communication for the employer to deliver to employees, the communication is considered advice where the employer is free to accept or reject the written material prepared for him. See 81 F.R The Donahue Memo clarified that the dividing line between what must be reported and what is subject to the advice exemption depends upon whether the consultant directly communicates with employees. Direct communication with employees is subject to reporting under Sections 203(a) and (b). The LMRDA s Interpretative Manual, which guides Department staff in enforcing the LMRDA, has adopted the Donahue Memo s Interpretation. The Interpretation reflected in the Donahue Memo was upheld by the D.C. Circuit as lawful in UAW v. Dole, 869 F.2d 616. On June 11, 2011, the Department issued a Notice of Proposed Rulemaking (NPRM) by the Office of Labor-Management Standards. The NPRM was published in the 5

16 Federal Register at 76 F.R (June 21, 2011) and invited interested parties to comment. After receiving 8,872 comments on the proposed revised Interpretation, the Department issued the new Interpretation on March 23, The Interpretation was published in the Federal Register on March 24, F.R The effective date of the new Interpretation is April 25, Compliance with the new Interpretation is required beginning July 1, The new Interpretation redefines the scope of reportable persuader activities and eliminates the accept or reject test for advice. Under the new Interpretation, if the consultant develops or assists the employer with developing anti-union tactics and strategies to be used by the employers supervisors or other representatives, such activity triggers reporting. 81 F.R The Interpretation amends both the instructions on the LM-10 and LM-20 forms and the forms themselves. The new instruction for the LM-20 form (81 F.R ) states that: Reporting of an agreement or arrangement is triggered when: (1) A consultant engages in direct contact or communication with any employee with an object to persuade such employee; or (2) A consultant who has no direct contact with employees undertakes the following activities with an object to persuade employees: (a) plans, directs, or coordinates activities undertaken by supervisors or other employer representatives, including meetings and interactions with employees; 6

17 (b) provides material or communications to the employer, in oral, written, or electronic form, for dissemination or distribution to employees; (c) conducts a seminar for supervisors or other employer representatives; or (d) develops or implements personnel policies, practices, or actions for the employer. Specific examples of activities that either alone or in combination would trigger the reporting requirements include but are not limited to: o planning or conducting individual employee meetings; o planning or conducting group employee meetings; o training supervisors or employer representatives to conduct such meetings; o coordinating or directing the activities of supervisors or employer representatives; o establishing or facilitating employee committees; o conducting a union avoidance seminar for supervisors or employer representatives in which the consultant develops or assists the attending employers in developing anti-union tactics or strategies for use by the employers supervisors or other representatives ( reportable union avoidance seminar ); o drafting, revising, or providing speeches, written material, website, audiovisual or multimedia content for presentation, dissemination, or distribution to employees, directly or indirectly (including the sale of off-the-shelf materials where the consultant assists the employer in the selection of such materials, except as noted below where such selection is made by trade associations for member-employers); o developing employer personnel policies designed to persuade, such as when a consultant, in response to employee complaints about the need for a union to protect against arbitrary firings, develops a policy under which employees may arbitrate grievances; o identifying employees for disciplinary action, reward, or other targeting based on their involvement with a union representation campaign or perceived support for the union; o coordinating the timing and sequencing of union avoidance tactics and strategies. To be reportable, as noted above, such activities must be undertaken with an object to persuade employees, as evidenced by the agreement, any accompanying communications, the timing, or other circumstances relevant to the undertaking. 7

18 The Department s new LM-10 and LM-20 forms require that filers complete a detailed checklist of specific activities. The requirement to file an LM-20 form will also trigger the obligation to file an LM-21 form. Part B of the LM-21 requires the filer to disclose all receipts from employers in connection with labor relations advice or services regardless of the purposes of the advice or services, including the name of the employer and the amount received. It also requires the filer to disclose its disbursements to officers and employees in connection with labor relations advice or services rendered to the employers listed in Part B. II. SUMMARY OF ARGUMENT The Court should stay the implementation of the Interpretation because Plaintiffs are likely to succeed on the merits, they will be irreparably harmed absent the requested relief, the Department will not be prejudiced by the delay, and the relief requested is in the public interest. Plaintiffs are likely to succeed on the merits for several reasons. First, the Interpretation is contrary to the plain text of the statute. It expands the scope of the activity that must be reported and simultaneously eviscerates the advice exemption. It also improperly invades the attorney-client relationship, contrary to Congressional intent. Second, the Interpretation violates the First Amendment. The Interpretation shoves the LMRDA into a thicket of very serious constitutional concerns because it discriminates against speech based on viewpoint and content. Third, the Interpretation is void for vagueness because it is nearly impossible to determine what activity is reportable. Fourth, the Interpretation is arbitrary and capricious because it is unsupported and is internally 8

19 contradictory. Fifth, the Interpretation is overbroad because it captures a significant amount of confidential information that is not needed to achieve the goals the Department purports to further with the Interpretation. Finally, by failing to properly assess the cost of compliance and excluding the burdensome LM-21 reporting requirement, the Department has failed to meet its obligations under the Regulatory Flexibility Act. III. STANDARD OF REVIEW Under the Administrative Procedure Act ( APA ), the reviewing court shall set aside and hold unlawful any agency action that is: (a) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (b) contrary to constitutional right, power, privilege, or immunity; (c) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right. 5 U.S.C. 706(2)(a)-(c). While many litigants and courts style the relief sought and granted in the context of a challenge to a rule under the APA as one for injunctive relief, the appropriate relief under the APA is to stay (as opposed to a preliminary injunction) or set aside the rule (as opposed to a permanent injunction). 5 U.S.C. 705 and 706(2); See R.J. Reynolds Tobacco Co. v. Food & Drug Admin., 696 F.3d 1205, 1222 (D.C. Cir. 2012); N. Air Cargo v. United States Postal Serv., 674 F.3d 852, 861 (D.C. Cir. 2012). The factors involved in a determination of a motion to stay are the same as those for preliminary injunctions, so the substantive analysis is the same. See Wash. Metro. Area Transit Comm'n v. Holiday Tours, Inc., 559 F.2d 841, 842 (D.C. Cir. 1977). In a recent decision affirming the issuance of a preliminary injunction enjoining the government from enforcing a federal law, the Eighth Circuit stated: 9

20 In determining whether to grant injunctive relief, a district court generally considers (1) the threat of irreparable harm to the movant; (2) the balance between the potential harm and any harm that granting the injunction will cause to other parties to the litigation; (3) the probability that the movant will succeed on the merits; and (4) the public interest. Id. (citations omitted); see also Dataphase Sys., Inc. v. C.L. Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981). Although no single factor is determinative, Dataphase, 640 F.2d at 113, the probability-of-success factor is the most significant, see Home Instead, Inc. v. Florance, 721 F.3d 494, 497 (8th Cir. 2013). Sharpe Holdings, Inc., v. U.S. Dept. of Health and Human Svcs., 801 F.3d 927 (8th Cir. 2105). IV. ARGUMENT A. Plaintiffs are Likely to Succeed on the Merits. The standard to be applied to a challenge of a final agency action under the APA was set forth by the Supreme Court in Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984). In Chevron, the Supreme Court stated that if Congress had an intention on the precise question at issue, that intention is the law and must be given effect. 467 U.S. at 843 n.9 ( Chevron Step One ). If, however, the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency s answer is based on a permissible construction of the statute. Id. at 843. ( Chevron Step Two ). To determine if Congress had an intention on the precise question at issue under Chevron Step One, the Court should use traditional tools of statutory interpretation-text, structure, purpose, and legislative history. N. Y. State Bar Ass n v. F.T.C., 276 F. Supp. 2d 110, 117 (D.D.C. 2003) (citing Citizens Coal Council v. Norton, 330 F.3d 478, 481 (D.C. Cir. 2003)); Chevron, 467 U.S. at

21 [T]he existence of ambiguity is not enough per se to warrant deference to the agency s interpretation. Am. Bar Ass n v. F.T.C., 430 F.3d 457, 469 (D.C. Cir. 2005); Michigan v. EPA, 268 F.3d 1075, 1082 (D.C. Cir. 2001) ( Mere ambiguity in a statute is not evidence of congressional delegation of authority. ). Instead, the ambiguity must be such as to make it appear that Congress either explicitly or implicitly delegated authority to cure that ambiguity to the agency. Id. Put another way, Chevron deference comes into play, of course, only as a consequence of statutory ambiguity and then only if the reviewing court finds an implicit delegation of authority. Sea-Land Serv. Inc. v. Dep t of Transp., 137 F.3d 640, 645 (D.C. Cir. 1998). When an agency action involves a decision of significance or an extraordinary case but the action is based on subtle, cryptic, or ambiguous statutory authority, Chevron deference is not warranted because Congress does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions. Whitman v. Am. Trucking Ass ns, 531 U.S. 457, 468 (2001); FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 123 (2000); MCI Telecomms. Corp. v. Am. Tel. & Tel. Co., 512 U.S. 218, 231 (1991); Am. Bar Ass n, 430 F.3d at 469. Or, as Justice Scalia famously quipped in Whitman, Congress, does not, one might say, hide elephants in mouseholes. 531 U.S. at

22 1. The Interpretation is not Entitled to Chevron Deference. The traditional tools of statutory construction 2 prove that Congress s intent in enacting the LMRDA, Section 203(c), and Section 204 was to offer a broad-based exemption for attorneys from the Act s reporting requirements. The statute requires reporting only when the object thereof, directly or indirectly, is to persuade employees to exercise or not to exercise, or persuade employees as to the manner of exercising, the right to organize and bargain collectively through representatives of their own choosing. 29 U.S.C. 433(a)-(b). However, advice is exempt from the reporting requirements. 29 U.S.C. 433(c). Thus, because Congress had an intention on the precise question at issue, it is incumbent upon the Court to effectuate this intent and set aside an agency action that directly conflicts with this intent as the Interpretation will do. Chevron, 467 U.S. at 843 n.9. Furthermore, as the Eighth Circuit noted in Rose Law Firm, beyond this plain text, the statute s legislative history reveals that a broader definition of reportable activity was contained in a draft bill before the Senate, but never became law. 768 F.2d at 973. The Supreme Court recently reaffirmed the basic tenet of statutory interpretation that the rejection of particular language and substitution of other language can provide evidence of Congressional intent. Mohamad v. Palestinian Auth., 132 S. Ct. 1702, 1710 (2012). 2 The plain text of the statute is the first traditional tool of statutory construction. Bell Atl. Tel. v. FCC, 131 F.3d 1044, 1047 (D.C. Cir. 1997). 12

23 a. The Interpretation should be set aside under 5 U.S.C. 706(2)(c) because it is contrary to the statute. The Interpretation should be set aside under 5 U.S.C. 706(2)(c) because the agency action is in excess of statutory jurisdiction, authority, or limitations, or short of statutory right. Here, the Interpretation conflicts with the plain text of the statute in two ways. First, it eliminates the exemption of advice from the reporting requirement. Second, the Interpretation reconfigures the scope of the reporting requirement without any explanation. In addition, the Interpretation fundamentally alters, and impermissibly intrudes upon, the attorney-client relationship. i. The Interpretation eviscerates the advice exemption. The Act expressly excludes the giving of advice. 29 U.S.C. 433(c). Consistent with the legislative history, the Department has historically interpreted this to mean that a law firm must report if it communicates directly with employees, but not if it provides recommendations that the client is free to accept, modify or reject. The Department concedes that under its new analysis, there is no need to inquire as to whether the activity constitutes advice because the only issue is whether there is an object to persuade. 81 F.R In so doing, the Department articulates a position that has been rejected by the Eighth Circuit, that Section 203(c) makes explicit what is left implicit in section 203(a) and (b): The statute exempts an employer or its labor relations consultant from having to file the Form LM-10 or LM-20, respectively, if the activities undertaken by the consultant on behalf of the employer merely constitute advice. 81 F.R ; Rose Law Firm,

24 F.2d at 972. It further states that persuader activities do not overlap with tasks that may constitute advice to the employer[,] 81 F.R , a position that is contrary to the D.C. Circuit s decision in UAW v. Dole, in which the court specifically noted that there is an overlap between what is reportable under 203(a) and (b) and what is advice under 203(c). 869 F.2d at 618 ( the threshold question presented by this case [is] what is the appropriate characterization of activity that can be viewed as both advice and persuasion? ). The legislation s history and Congress s purpose in enacting Section 203(c) and 204 was to provide attorneys engaged in legitimate legal advice a broad exemption from the Act. See Rose Law Firm, 768 F.2d at 974 ( Conf. Rep. No specifically refers to 203(c) as a broad exemption from the requirements of [ 203(b)]. ); Dole, 869 F.2d at 618 ( Congress intended to grant broad scope to the term advice. ); American Bar Association Comments Submitted to Department Concerning 76 Fed. Reg , September 21, 2011, at 4 (hereafter ABA Comments ) (agreeing with this view and noting that the longstanding interpretation of the advice exemption is much more consistent with the plain language of the LMRDA and with Congress intent in adopting the statute. ). The new Interpretation completely destroys the advice exemption. The only services that are covered in the first place are services with the object to persuade employees. Thus, the advice exemption would be meaningless if it did not cover advice with the object to persuade employees. Yet, the new Interpretation specifically states that advice does not include communications that are undertaken with an object, directly or indirectly, to persuade employees concerning their rights to organize or bargain collectively. The new Interpretation eviscerates the Advice exemption by reading it to 14

25 cover only activities that are not covered in the first place. The Department s prior interpretation of the advice exemption recognized this. The very purpose of section 203 s exception prescription, the Secretary maintains, is to remove from the section s coverage certain activity that otherwise would have been reportable. Dole, 869 F.2d at 618. To the extent there is a tension between the reporting requirement and the advice exemption, the exemption must control. Contrary to Eighth Circuit precedent, the Department s new Interpretation is the opposite of broad. An exception that only covers advice which would not be considered reportable persuader activity in the first place, is anything but broad. The Department contends that the activities that now fall within the exemption include only counseling a business about its plans to undertake a particular action or course of action, advising the business about its legal vulnerabilities and how to minimize those vulnerabilities, identifying unsettled areas of the law, and representing the business in any disputes and negotiations that may arise. 81 F.R The Department mistakenly reads the word legal into the statute, limiting the advice exemption to what it views as legal advice. The statute is not so limited. Reporting, at 293. Moreover, the Department contradicts its own definition of advice when it attempts to diminish the role of a consultant from one of an advisor to merely a neutral, disinterested third party. 81 F.R Congress did not intend to exempt from coverage only neutral third parties, who, incidentally, are not required to report in the first place. Reporting of the activities outlined in the Interpretation is not what Congress intended on the precise question at issue. Chevron, 467 U.S. at 843. Because the Secretary s 15

26 Interpretation contradicts the intent of Congress, it is not entitled to deference under Chevron Step One and should be set aside on this basis alone. ii. The Interpretation vastly broadens the scope of reportable activity to include activity outside the scope of the statute. The new Interpretation of the LMRDA also reflects the Department s sleight of hand expansion of the scope of persuasive activity. The statute requires reporting of any agreement or arrangement with an employer where an object thereof is, directly or indirectly, to persuade employees to exercise or not to exercise, or persuade employees as to the manner of exercising, the right to organize and bargain collectively through representatives of their own choosing[.] 29 U.S.C. 433(b). The Department takes the position that persuasive activity and advice are mutually exclusive, contrary to the Rose Law Firm holding that the reporting requirement and exemption overlap. 768 F.2d at 973 ( we do not agree with the Fourth, Fifth, Sixth, and Seventh Circuits that the legislative history of the LMRDA supports the view that 203(c) is merely a proviso to make explicit the implicit triggering requirement of 203(b). ). In taking the position that persuasive activity and advice are mutually exclusive, the Department relies upon cases that hold that the two categories were distinct when an attorney engaged in direct contact with employees with the intent to persuade them. The Department simultaneously coopts the mutual exclusivity principle from these cases and expands the scope of reportable activities to include activities even absent any direct contact with employees. 16

27 The Department s new Interpretation rejects the approach reflected in the Donahue Memo, which held that activity is reportable only when it involves direct contact with employees. The Department now asserts that direct and indirect refer to contact with employees even though that appears nowhere in the statute. The Department inaccurately claims that the approach reflected in the Donahue Memo required reporting only of direct persuasive activity because it required reporting only when consultants directly contacted employees. See 81 F.R ; see also 81 F.R (defining direct persuasion as direct contact with employees); see also 81 F.R ( The analysis has two parts: (a) Did the consultant engage in the direct and indirect contact activities identified in the instructions; and (b) did the consultant do so with an object to persuade employees? ). For that reason, according to the Department, no indirect persuader activity was being reported. Id. The Department viewed that approach as failing to capture indirect persuasive activity because it understands indirect to mean that there has been no contact with employees. Id.; 81 F.R (Form LM-20 refers to direct contact and no direct contact ). The Department s reconfiguration of the scope of persuasive activity conflates a principle put in place by the former rule, that persuaders need only report direct contact with employees, with the language in the statute, that activity with the direct or indirect object to persuade must be reported. The Donahue Memo did not fail to capture indirect persuasion because the terms direct and indirect refer not to whether the consultant is in contact with the employee, but to whether the employee is being presented with a straight forward (direct) argument, or a subtle (indirect) argument. This reading of the statute is exemplified by Master Printers 17

28 of Am. v. Marshall, Nos A and A, 1979 U.S. Dist. LEXIS 12518, *7 (E.D. Va. May 9, 1979) (describing the direct and indirect object to persuade in the context of articles, which were sent directly to employees, that subtly, as well as directly, attempt[ed] to dissuade... employees from joining a union. )). 3 The concept in the Donahue Memo of direct contact with employees was not derived from the use of the term direct in the statute, but from the structure of the statute as a whole. The interpretation contained in the Donahue Memo reflected a careful understanding of the statutory language, and thus appropriately exempted advice from reporting. Under the new Interpretation, however, the Department s position is that any activity not involving contact with employees, including advice, which is expressly exempted from the reporting requirement, is now considered indirect persuasive activity that must be reported. 4 3 This is not an uncommon meaning attributed to the terms direct and indirect in this type of situation. See, e.g., Dr. Jo Kaster, Winthrop University, Faculty web page, available at ( Direct Approach When you use the direct approach, the main idea (such as a recommendation, conclusion, or request) comes in the top of the document, followed by the evidence. This is a deductive argument. This approach is used when your audience will be neutral or positive about your message. Indirect Approach In the indirect approach, the evidence is presented first, leading therefore to the main idea. This is an inductive argument. This approach is best if your audience may be displeased about or may resist what you have to say. ) (last visited on April 10, 2016). 4 The Department s position that the exemption makes explicit what is implicit in the reporting requirement itself, is a principle that grows out of the analytical structure in the Donahue Memo. If, consistent with the Donahue Memo, the reporting requirement is intended to cover only middlemen who have direct contact with employees whether they present direct or indirect arguments, only then can the Department s position be accepted that the exemption makes explicit what is implicit in the reporting requirement. That is because the scope of the reporting requirement would not be broad enough to capture advice, which does not involve direct contact with employees. Conversely, if the reporting 18

29 The Department sets aside logic, and, astonishingly, claims to reach activities so far outside the scope of the statute that it does not even reject the possibility that, under its new definition of persuader activity, an interior decorator could be required to submit a report F.R The new scope of persuasive activity reflected in the Interpretation extends well beyond a reexamination of the advice exemption, and is utterly inconsistent with the statutory language and legislative intent. iii. The Interpretation invades the confidential attorney-client relationship. The impact of the Interpretation on attorney confidentiality obligations is of specific importance to Plaintiffs. See Affidavit of Douglas P. Seaton, attached as Exhibit 1 to this Memorandum; Complaint 40, Even if the Court finds that the statute is silent or ambiguous, the Interpretation is unlawful because it forces attorneys to violate attorney confidentiality obligations under ABA Model Rule 1.6 and similar provisions found in State professional rules of conduct for all Plaintiff law firms, and renders Section 204 a nullity. The Department rendered this decision of such economic and political significance despite the fact that it lacked any statutory authority for its unprecedented view which is, at best, subtle, cryptic, or ambiguous. Whitman, 531 U.S. at 468; Brown & Williamson Tobacco Corp., 529 U.S. 120; MCI Telecomms. Corp., 512 U.S. 218; requirement covers any behind the scenes work as indirect persuasion, there is necessarily an overlap between indirect persuasive activity and advice and the exemption most certainly does not make explicit what is implicit in the reporting requirement. 5 This is contrary to Congressional intent. Congressional intent in defining the scope as such was to exclude activities such as sending Christmas hams when done with the tangential intent of avoiding union organizing. Reporting at (citing 104 CONG. REC (1958)). 19

30 Am. Bar Ass n, 430 F.3d at 469. In similar contexts, courts, including the Supreme Court, have found that the agency decision is not afforded its usual deference under Chevron. Id. The ABA s Model Rules of Professional Conduct adopted a specific confidentiality rule in Rule1.6, which states, A lawyer shall not reveal information relating to the representation of a client. MODEL RULES OF PROF L CONDUCT R Each of the Plaintiffs state attorney regulatory agencies has adopted a similar, if not identical rule. See ALA. RULES OF PROF L CONDUCT R. 1.6; FLA. RULES OF PROF L CONDUCT R. 1.6; MD. LAWYERS RULES OF PROF L CONDUCT R. 1.6; MASS. RULES OF PROF L CONDUCT R. 1.6; MINN. RULES OF PROF L CONDUCT R. 1.6; N.Y. RULES OF PROF L CONDUCT R. 1.6; OHIO RULE OF PROF L CONDUCT R. 1.6; NEV. RULE OF PROF L CONDUCT R. 1.6; TEX. DISCIPLINARY RULES OF PROF L CONDUCT This comprehensive state regulation of attorney conduct through Rule 1.6 is consistent with the observation that, It is undisputed that the regulation of the practice of law is traditionally the province of the states. Am. Bar Ass n, 430 F.3d at 471; see also New York State Bar, 276 F. Supp. 2d at 128 ( the regulation of lawyers and the practice of law have historically been recognized as the responsibility of the states. (citing Leis v. Flynt, 439 U.S. 438 (1979))). [I]f Congress intends to alter the usual constitutional balance between the States and Federal Government, it must make its intention to do so unmistakably clear in the language of the statute. Id. Paragraph 2 of the Model Rules Comments sets forth the strong public policy rationale for confidentiality: A fundamental principle in the client-lawyer relationship is that, in the absence of the client's informed consent, the lawyer must not reveal information relating to the representation. This contributes to the trust that is 20

31 the hallmark of the client-lawyer relationship. The client is thereby encouraged to seek legal assistance and to communicate fully and frankly with the lawyer even as to embarrassing or legally damaging subject matter. The lawyer needs this information to represent the client effectively and, if necessary, to advise the client to refrain from wrongful conduct. Almost without exception, clients come to lawyers in order to determine their rights and what is, in the complex of laws and regulations, deemed to be legal and correct. Based upon experience, lawyers know that almost all clients follow the advice given, and the law is upheld. MODEL RULES OF PROF L CONDUCT R. 1.6 CMT. Paragraphs 4 and 13 of the Comments make clear that Rule 1.6 protects a broad array of information, beyond that protected by the attorney-client privilege. 6 For instance, Paragraph 4 states that the prohibition against disclosure applies even in such situations where lawyers... do not in themselves reveal protected information but could reasonably lead to the discovery of such information by a third party. Id. at 1.4 CMT. Likewise, Paragraph 13 states that disclosure is also prohibited if it would... prejudice the client (e.g., the fact that a corporate client is seeking advice on a corporate takeover that has not been publicly announced... or that a person has consulted a lawyer about a criminal investigation that has not led to a public charge.). Id. at CMT The American Bar Association explicitly opposed the Interpretation, noting that, The range of client information that lawyers are not permitted to disclose under ABA Model Rule 1.6 is broader than that covered by the attorney client privilege.... This category of non-privileged, confident client information includes the identity of the client as well as other information related to the legal representation, including, for example, the nature of the representation and the amount of legal fees paid by the client to the lawyer. See ABA Comments at 6-7. Incredibly, the new Interpretation requires the Plaintiffs to disclose confidential information about clients who bear no relationship to the persuasive activity that triggered the report. 21

32 While Rule 1.6(b) allows for disclosure to comply with other law or a court order, Paragraph 12 of the Comments states that, Whether such a law supersedes Rule 1.6 is a question of law beyond the scope of these Rules. Id. at CMT 12; MODEL RULES OF PROF L CONDUCT R. 1.6(b). At least two of Plaintiffs states have adopted provisions in their professional rules providing a presumption against supersession. ALA. RULES OF PROF L CONDUCT R. 1.6, CMT.; FLA. RULES OF PROF L CONDUCT R Additionally, attorneys have an obligation to resist intrusion upon the confidential nature of the attorney-client relationship, even in this context. 7 The Interpretation places Plaintiffs, therefore, in the untenable position of disclosing confidential information and risking professional sanctions on the one hand, and actively resisting disclosure and risking criminal liability on the other. Further, because of the importance of confidentiality under Rule 1.6, circumstances where other laws supersede Rule 1.6 are rare. Such disclosure was required by the Eighth Circuit in the context of a criminal investigation into the structuring of financial payments. United States v. Sindel, 53 F.3d 874, 877 (8th Cir. 1995). The Eighth Circuit in Sindel found that Congress spoke clearly on the issue of structuring (i.e., the execution of financial transactions in patterns so as to avoid certain IRS reporting requirements) and that even if Rule 1.6 was applicable, the federal statute banning structuring and requiring reporting from attorneys must supersede because, Congress cannot have intended to allow 7 Ethics opinions guide attorneys to resist disclosure in reports to the government unless a court orders disclosure. See Washington Ethics Opinion 194 (1997); Mass. Ethics Opinion 94-7 (1994); Florida Ethics Opinion 92-5 (1993); D.C. Ethics Opinion 214 (1990); Georgia Ethics Opinion 41 (1984). 22

33 local rules of professional ethics to carve out fifty different privileged exemptions to the reporting requirements of 26 U.S.C Sindel, 53 F.3d at 877. In contrast to the structuring statute, as the ABA noted, Nothing in the LMRDA expressly or implicitly requires lawyers to reveal client confidences to the government. See ABA Comments, at 6, n. 19. Rather, as confirmed by 204, the exemption is sufficiently broad as to avoid the need to carve out fifty different exemptions. A requirement to disclose client confidences would solely emanate from the Department s Interpretation. Thus, the Department has essentially created its own exception to Rule 1.6 without support in the text of the statute. Additionally, there is no way that the Department s position can be consistently interpreted with Section 204 s attorney-client protections. It will be impossible to fill out the Department s required checklist and other forms without divulging attorney-client protected material. Ironically, it will be impossible for Plaintiffs to fend off a Department investigation without divulging information protected by the attorney-client privilege or Rule And, as reviewed above, other material that might not come under the rubric of the attorney-client protection such as the existence of a client relationship or the amount of fees paid is still protected by the broader prohibitions in Rule 1.6 and its state ethics rules. Brennan's, 590 F.2d at The Department will now determine whether the reporting obligation has been triggered by examining the agreement, any accompanying communication, the timing, or other circumstances relevant to the undertaking, 81 F.R , thereby requiring disclosure of privileged and confidential information in order to demonstrate compliance with the law. 23