[00:00:01] Speaker 03: Case number 15-5014, Rialana, Inc. [00:00:04] Speaker 03: and Rialana's Franchise Systems, Inc., Appellants vs. Department of Labor. [00:00:08] Speaker 03: Mr. Schwartz for the Appellants, Ms. [00:00:10] Speaker 03: Foster for the Appellate. [00:00:52] Speaker 01: May it please the court, Stephen Schwartz for Appellants Rialana and Rialana's franchise systems. [00:00:57] Speaker 01: I'd like to reserve three minutes for rebuttal. [00:01:01] Speaker 01: The Department of Labor held in its determination letter that Rialana's long-established business model violates the Fair Labor Standards Act. [00:01:09] Speaker 01: The legal consequence of the letter is to place Rialana in jeopardy of civil monetary penalties if Rialana does not comply. [00:01:16] Speaker 01: The question is whether the agency can force a Hobson's choice on Rialana without submitting to judicial review. [00:01:25] Speaker 01: The answer is that Rielana is entitled to its stay in court because the agency's action is final and reviewable. [00:01:32] Speaker 01: This case is controlled by the Supreme Court's decision in Sackett, where EPA tried to coerce compliance in much the same way. [00:01:43] Speaker 01: The difference between the compliance order in Sackett and the termination letter here is basically superficial. [00:02:00] Speaker 01: I agree, Your Honor, that the compliance order in Sackett described the terms of compliance in a great deal of detail, but that emerged from the fact that restoring wetlands is a complicated operation. [00:02:22] Speaker 01: Yes, and Rialon is required to do something as well. [00:02:27] Speaker 01: They're required to start complying with the Fair Labor Standards Act and to start paying minimum wage and overtime. [00:02:35] Speaker 01: They are always required, but what the determination letter changes, it changes a couple of things. [00:02:44] Speaker 01: One is it takes the Fair Labor Standards Act and applies it to the particular facts of a particular business. [00:02:50] Speaker 01: As this court's cases going all the way back to National Automatic Laundry hold, when there is an ambiguity about whether a statute or how a statute applies to a particular party's business model, [00:03:03] Speaker 01: In that situation. [00:03:04] Speaker 06: Does that change rights or obligations? [00:03:06] Speaker 06: Is that your argument? [00:03:08] Speaker 01: I'm sorry, Your Honor? [00:03:09] Speaker 06: That doesn't change rights or obligations. [00:03:10] Speaker 06: It makes them clearer, but it doesn't change them. [00:03:13] Speaker 01: Well, Your Honor, the agency can argue that in basically any case. [00:03:17] Speaker 01: It can always say, well, that was always your obligation. [00:03:20] Speaker 01: We're going to change it. [00:03:21] Speaker 01: I'm a little confused about why you're relying on this point. [00:03:23] Speaker 04: So in second, citing Bennett, the court says there's two ways. [00:03:30] Speaker 04: One is. [00:03:32] Speaker 04: legal obligation, and the other is the legal consequences that flow. [00:03:38] Speaker 04: That's correct, Your Honor. [00:03:39] Speaker 04: And second, the legal obligation is the one that Judge Edwards mentioned. [00:03:44] Speaker 04: I'm just reading. [00:03:45] Speaker 04: By reason of the order, the Sacketts have a legal obligation to restore their property. [00:03:49] Speaker 04: They were ordered to restore their property. [00:03:51] Speaker 04: You don't have that. [00:03:52] Speaker 04: There's no order, direct order. [00:03:56] Speaker 04: But you don't need that. [00:03:57] Speaker 04: Because in Sackett, the court said it was also enough that there were legal consequences. [00:04:02] Speaker 04: And in that case, legal consequences were the exposure of the Sacketts to double penalties in a future enforcement proceeding. [00:04:09] Speaker 04: So why do we need to discuss the question of whether the letter actually orders you to do something, as long as it has the legal consequences that you've been talking about, namely the risk of willfulness penalties? [00:04:23] Speaker 01: Your Honor, you're entirely correct. [00:04:25] Speaker 01: That's the way Bennett works. [00:04:26] Speaker 01: And our contention has always been that we succeed under both criteria of Bennett. [00:04:31] Speaker 01: But you're entirely correct, Your Honor, that even if you disagree that there is any order to comply, [00:04:38] Speaker 01: in the determination letter here. [00:04:41] Speaker 01: At the very least, what the determination letter does is create legal consequences for Rielana. [00:04:48] Speaker 01: In a future enforcement action, the Department of Labor would need to show either repeatedness or willfulness in order to extract civil monetary penalties. [00:05:01] Speaker 01: The determination letter plays a crucial role as a legal matter in the Department of Labor's ability to make those showings. [00:05:08] Speaker 03: That's what I'm wondering about. [00:05:12] Speaker 03: They've got to prove the alleged first violation and the alleged second violation. [00:05:18] Speaker 03: So whatever they've done here cannot be seen as a conclusion of determination of your own doing. [00:05:24] Speaker 03: They have to prove that later in the event that it comes up. [00:05:27] Speaker 01: Your Honor, you're correct, but there are... Same thing with Wolf. [00:05:31] Speaker 01: You're correct, Your Honor, that it's not dispositive, that this determination letter isn't dispositive of, say, overall liability for civil monetary penalties. [00:05:40] Speaker 03: Well, it isn't dispositive to whether or not you're liable. [00:05:44] Speaker 03: What if you violated the law in this first instance? [00:05:47] Speaker 01: It's not dispositive of that, Your Honor. [00:05:49] Speaker 01: You're correct. [00:05:50] Speaker 01: What it is dispositive of is notice, because in a future civil monetary penalty enforcement action, remember there are two things. [00:05:59] Speaker 01: There's repeatedness and there's willfulness. [00:06:01] Speaker 01: I'll talk about repeatedness first. [00:06:02] Speaker 01: As a repeatedness, the government would need to show three elements. [00:06:06] Speaker 01: It would need to show a past violation. [00:06:08] Speaker 01: It would need to show a present violation or a new violation. [00:06:12] Speaker 01: And it would need to show notice in between. [00:06:14] Speaker 01: Even if the government succeeded in persuading an ALJ and the court that there was a violation, if the government, if the DOL had not sent this determination letter, it would have been unable to satisfy that third element of notice. [00:06:31] Speaker 01: And that would have made it impossible to extract civil monetary penalties. [00:06:35] Speaker 01: Having sent the determination letter, though, the government has satisfied that element as a matter of law. [00:06:41] Speaker 01: So instead of Rialana having a complete legal defense as to repeatedness and a future civil monetary penalty. [00:06:48] Speaker 01: monetary penalty action, suddenly it's on the hook as a matter of law as long as the government succeeds on the merits. [00:06:56] Speaker 01: Now, as to willfulness, it's a slightly different issue. [00:06:58] Speaker 01: As to willfulness, what the government would need to show in a future civil monetary penalties action is two things. [00:07:05] Speaker 01: They'd need to show a violation, and they need to show the mental state, the mental state being willfulness, knowledge, recklessness. [00:07:13] Speaker 01: In general, in the mind run of cases, [00:07:17] Speaker 01: pursuant to the Supreme Court's decision in Richmond Shoe, willfulness, the mental state would be a matter of question of fact, and it would be evaluated based on all the facts and circumstances. [00:07:30] Speaker 01: But what the Department of Labor's regulations say, if you look at just the plain text, is that willfulness is resolved as a matter of law [00:07:41] Speaker 01: against the regulated party if the Department of Labor has sent some kind of warning and the regulated party has ignored it. [00:07:52] Speaker 06: And is it enough that the official who authored the determination letter is the director of the Arkansas Wage and Hour Division? [00:08:00] Speaker 06: The subordinate official, does that affect at all the finality here? [00:08:03] Speaker 06: Because we're used to, you know, in a lot of cases having something that's definitive from the secretary. [00:08:09] Speaker 06: We don't have that here, do we? [00:08:10] Speaker 01: That's certainly true, Your Honor. [00:08:12] Speaker 01: A couple of points on that, though. [00:08:14] Speaker 01: One is that the government has never argued that the regional director of the wage and hour division isn't a competent official with the authority to send this kind of notice. [00:08:23] Speaker 01: The second is that almost exactly the same kind of circumstance [00:08:28] Speaker 01: appeared in the Seventh Circuit's decision, Western Illinois Home Healthcare, except that in that case, it wasn't even the regional director. [00:08:37] Speaker 01: It was an assistant regional director. [00:08:40] Speaker 01: Western Illinois Home Healthcare, as we explained in the briefing, [00:08:43] Speaker 01: an indistinguishable decision in the substantive respects, the letter in that case was identical. [00:08:50] Speaker 01: I might add parenthetically that if there's any issue about whether Western Illinois Home Healthcare is rightly decided, it's resolved by the fact that it's cited as an example of final agency action in the leading treatise on federal standards of review, written of course by Judge Edwards. [00:09:10] Speaker 01: Given all of that, we're not sure we're going to be able to regard that as persuasive. [00:09:16] Speaker 01: Judge Edwards might have to correct it in the next edition. [00:09:18] Speaker 06: It's descriptive. [00:09:19] Speaker 06: It's not normative. [00:09:23] Speaker 03: What do you do? [00:09:23] Speaker 03: Think with me, if you would. [00:09:25] Speaker 03: What do you do with the rightness cases? [00:09:28] Speaker 03: Where toilet goods, the Supreme Court said, this isn't the right moment for us to be worrying about this. [00:09:38] Speaker 03: The government may or may not act later. [00:09:40] Speaker 03: We don't know whether they will. [00:09:42] Speaker 03: We don't know whether they can prove. [00:09:44] Speaker 03: And we can consider rightness now, Mr. Espante. [00:09:46] Speaker 03: I understand you've been focusing on finality. [00:09:49] Speaker 03: But is this even right for our consideration at this point? [00:09:52] Speaker 01: With the understanding of course. [00:09:55] Speaker 01: With the understanding, of course, that the government hasn't raised a rightness. [00:09:58] Speaker 01: And I know you're ready, so that's why I'm here. [00:10:00] Speaker 01: Of course, Your Honor. [00:10:02] Speaker 01: And of course, with the understanding that if you're interested in rightness, we're happy to discuss it in supplemental briefing. [00:10:08] Speaker 03: Well, we'll just read that. [00:10:09] Speaker 03: Edward Stuck, you've already cited him. [00:10:11] Speaker 01: Well, what the Supreme Court says in Abbott, Abbott, of course, is a rightness case. [00:10:17] Speaker 01: And Seba Gagey, this court's decision, is a rightness case. [00:10:20] Speaker 01: What emerges from those decisions is that- We're going to toilet them. [00:10:24] Speaker 01: Toilet goods, the facts of that case escape me at the moment. [00:10:28] Speaker 01: They involve toilet goods. [00:10:31] Speaker 01: Heavens. [00:10:33] Speaker 01: But what emerges from those cases is that when there is final agency action, the case is almost ipso facto ripe. [00:10:41] Speaker 01: The way the court's analysis and avid labs worked is basically, it talked about the elements of it. [00:10:48] Speaker 03: No, that is not correct. [00:10:50] Speaker 03: I mean, if you had to win on that point, you're in trouble. [00:10:53] Speaker 03: Because you can have final agency action on a case not right for consideration. [00:10:58] Speaker 01: That's certainly true. [00:10:59] Speaker 03: That's absolutely true. [00:11:00] Speaker 03: So I mean, that can't be your argument. [00:11:02] Speaker 01: No, no, it isn't the argument. [00:11:04] Speaker 01: It's simply that it's extremely unusual for there to be a case where there's final agency action and where it isn't right. [00:11:12] Speaker 03: No, it's not unusual because if you need to adjudicate facts, [00:11:16] Speaker 03: You may have finalized the agency action in the form of a rule, but the court doesn't know how it's going to be applied in a particular situation. [00:11:23] Speaker 03: It's not going to be right for consideration. [00:11:25] Speaker 03: There's a ton of law in that. [00:11:27] Speaker 04: So isn't your answer here that we already know what the government thinks about this, and now you have to make a very bad decision? [00:11:34] Speaker 04: And that is the kind of thing that makes something right when a private party has to [00:11:39] Speaker 04: make a decision at the risk of penalties. [00:11:44] Speaker 01: Precisely right. [00:11:44] Speaker 01: And that's what the Supreme Court said in Abbott. [00:11:47] Speaker 01: That's what this court said in National Automatic Laundry and Seba Gagee. [00:11:50] Speaker 01: The situations where ripeness is an additional hurdle are cases where there's kind of additional crystallization of the agency's position. [00:11:58] Speaker 01: or if the facts that's necessary before the case is really fit for judicial analysis. [00:12:04] Speaker 01: But in a case like this one, where the department, where the agency has sent out a letter that addresses a particular business and its particular facts and reached a particular conclusion, there's no need for additional crystallization. [00:12:18] Speaker 01: All the facts are settled and the agency's position is settled. [00:12:20] Speaker 06: And just to be clear, Mr. Schwartz, the decision that you are appealing, the exact [00:12:25] Speaker 06: There were several different letters here. [00:12:27] Speaker 06: We have the Darling Letter. [00:12:28] Speaker 06: We have the letter to the consignor volunteers themselves. [00:12:31] Speaker 06: There's a letter to the Congressman Griffin. [00:12:34] Speaker 06: Is it just the Darling Letter? [00:12:36] Speaker 01: The agency action we contend is primarily the Darling Letter, as this Court's decision in Seabegay contemplates. [00:12:46] Speaker 01: You can have final agency action that emerges from a combination of letters, in which case that would be the Darling Letter and also the letter to the consignor volunteers. [00:12:55] Speaker 06: What's your position? [00:12:57] Speaker 06: Just the Darling Letter? [00:12:58] Speaker 01: Our position is that all you need to review, all you actually need to review is the Darling Letter. [00:13:05] Speaker 01: The letter, the consignor volunteers, emphasizes the coercive nature of what's going on, because from the client's perspective, from Raylana's perspective, this is really just an effort by the agency to say, well, we aren't going to [00:13:20] Speaker 01: going to initiate an administrative or legal proceeding right now, but we're going to use a cat's paw, more or less, to do the same thing. [00:13:30] Speaker 01: But of course, the darling letter cites the letter to the consignor volunteers. [00:13:37] Speaker 01: So all you really need in order to understand the, all you really need in order to evaluate this for final agency action is the darling letter. [00:13:45] Speaker 06: And you've been complying with that since? [00:13:48] Speaker 01: We have not, actually. [00:13:49] Speaker 01: We've continued to work with our consignor volunteers exactly the way we have before, the fundamental aspect of the business model. [00:14:00] Speaker 01: And that heightens the fact that what we're being put in is precisely the situation that judicial review is supposed to remedy. [00:14:09] Speaker 03: You also could highlight the fact you don't think they can prove it if they ever try a second time. [00:14:14] Speaker 01: Your Honor, we have our merits theories, obviously. [00:14:17] Speaker 01: We have our views about the fact that ultimately the consignor volunteers aren't employees. [00:14:25] Speaker 01: In our view, they're working on their own behalf. [00:14:28] Speaker 01: They're selling their own goods and keeping most of the profits. [00:14:31] Speaker 01: And Rialana isn't employing them. [00:14:34] Speaker 01: What it's doing is it's providing [00:14:36] Speaker 01: kind of the space in terms of branding, organization, technology, software, in order to make these private transactions possible, in that sense. [00:14:45] Speaker 03: The government essentially conceded the first part of Bennett, right? [00:14:48] Speaker 01: Yes, the government has. [00:14:51] Speaker 03: That gave you a nice head start, didn't it? [00:14:53] Speaker 01: It did, Your Honor. [00:14:54] Speaker 01: We're pleased. [00:14:56] Speaker 01: But I mean, there wasn't, it's fairly clear that, especially after Western Illinois Home Healthcare, that the first part of Bennett is matched. [00:15:05] Speaker 06: And in the absence of the regulations establishing consequences, notice-based consequences for repeatedness or willfulness, would you still be here arguing that there are legal consequences of this letter? [00:15:21] Speaker 01: In the absence of that, it would be much harder, at the very least, to say there are legal consequences. [00:15:27] Speaker 01: We would still have our argument that under that first part of Bennett, where you're being ordered to comply, we'd still have that argument. [00:15:35] Speaker 01: I recognize that the court is skeptical of that argument, but we would still be making that argument. [00:15:40] Speaker 01: If we didn't have the regulations, though, we'd have a very different case. [00:15:45] Speaker 01: And in fact, cases where [00:15:48] Speaker 01: cases where those regulations aren't involved involve a harder question about final agency action. [00:15:54] Speaker 01: For example, I see my time is expiring, but in the Fifth Circuit case, Taylor Coleman Callahan, or whichever the order is, in that case, that came out before these regulations appeared. [00:16:08] Speaker 01: So in that case, there wasn't any legal effect that could have come from the government's regulations. [00:16:14] Speaker 04: If there weren't the regulation, we'd have to reverse a lot of our previous cases about advice letters. [00:16:19] Speaker 04: With the regulation, we have a way to distinguish it, isn't that right? [00:16:23] Speaker 01: This regulation makes it very clear, Your Honor, that there's a final... And makes it much more like second. [00:16:28] Speaker 01: Exactly. [00:16:29] Speaker 01: It makes it basically indistinguishable from the civil monetary penalties in Sackett, which were increased by the compliance letter there in almost exactly the same way. [00:16:39] Speaker 01: Any further questions? [00:16:41] Speaker 01: We'll hear from the government. [00:16:53] Speaker 02: May I please support Sydney Foster for the government? [00:16:56] Speaker 02: Your Honours, if plaintiff's theory is correct as to what makes something final agency action, then if an employer were to contact the agency and ask for its opinion as to the legality of the employer's actions, [00:17:10] Speaker 02: and the agency were to respond, the letter by a low-level official like the one that's at issue here, with its opinion as to the lawfulness of the employer's actions, that letter would somehow all of a sudden become judicially reviewable under the APA. [00:17:26] Speaker 04: That's only if you retain a regulation like you have on its face here. [00:17:33] Speaker 04: This regulation says, for purposes of this section, an employer's conduct shall be deemed knowing if the employer has received advice from a responsible official of the Wage and Hour Division. [00:17:47] Speaker 04: Now, your opposing counsel makes the point you never disputed that this is a responsible official. [00:17:53] Speaker 04: It's a little late for you to make that argument now. [00:17:54] Speaker 02: Are you... Right, and I'm not saying that this isn't a responsible official within the meaning of the regulation. [00:17:59] Speaker 02: I'm just saying it would be odd for someone that's at this level within the agency to be... Well, then why do you have a regulation that says, it says, shall be deemed knowing? [00:18:08] Speaker 04: That eliminates an element of the requirement, doesn't it? [00:18:11] Speaker 02: It does not, Your Honor, and I think plaintiffs misunderstand how the willfulness inquiry works. [00:18:17] Speaker 02: In the event of a future civil penalty proceeding, the agency would need to show not only the violation, but the willful nature of the violation. [00:18:24] Speaker 02: Plaintiffs misunderstand that regulation is doing, that that particular substance is doing more than it does. [00:18:29] Speaker 04: They misunderstand the meaning of the word shall be deemed. [00:18:31] Speaker 04: Is that what you're saying? [00:18:32] Speaker 02: They are reading that. [00:18:35] Speaker 02: That is correct. [00:18:35] Speaker 02: They're not reading it within the context of the regulation as a whole. [00:18:39] Speaker 02: That subsection, C2, needs to be read in context together with C1. [00:18:45] Speaker 02: C1 of the regulation provides that a violation is deemed full for purposes of the section where the employer knew that its conduct was prohibited by the Act. [00:18:56] Speaker 02: or showed reckless disregard for the requirements of the Act, we know from the regulatory history that the agency was intending to codify their, the McLaughlin standard. [00:19:04] Speaker 04: So you mean that the government lied to this First Circuit in Bay State by taking the opposite position? [00:19:10] Speaker 04: In Bay State, they took the position that deemed means deemed. [00:19:14] Speaker 04: And the First Circuit said, no, it doesn't. [00:19:16] Speaker 02: Yeah, I don't actually think that the government did take that position in base state. [00:19:19] Speaker 02: And I think if you look at the decision, in fact, the court notes that neither party, uh, right, defended the regulations or even attack the regulations. [00:19:28] Speaker 02: And I think if you look at the briefing in the case, you'll see that the government didn't [00:19:31] Speaker 02: just point to that regulation and say, cases over. [00:19:34] Speaker 02: There was a notification, cases over. [00:19:36] Speaker 02: Instead, if you look at the briefing, the government addressed the argument that was advanced there, that no, despite the fact that we had notice, we were relying on advice of counsel. [00:19:47] Speaker 02: In response to that argument, the government didn't simply cite to this regulation and say, game over. [00:19:50] Speaker 02: The government said, no, your reliance argument doesn't fly under the recklessness provisions of the... Why hasn't the government changed the language in Bay State [00:20:00] Speaker 04: with note 16, the court urged the secretary to change the regulation. [00:20:05] Speaker 04: Why didn't they do that? [00:20:06] Speaker 02: The government, you know, obviously changing regulations is a major undertaking. [00:20:10] Speaker 02: The government thinks that its current understanding of the regulations, which to be clear is informed by the court's decision in Bay State, is still consistent with the regulations. [00:20:19] Speaker 02: And, you know, another portion of the regulations upon which the government relies for its interpretation is the last sentence of subsection C1, which notes that all of the facts and circumstances surrounding [00:20:29] Speaker 02: a given violation shall be taken into account in determining whether a violation was willful. [00:20:35] Speaker 02: A plaintiff's reading of the regulation just reads that sentence out altogether. [00:20:40] Speaker 04: Isn't that what the court in Western Illinois did? [00:20:42] Speaker 04: In Western Illinois, didn't the court say that was the end of it? [00:20:46] Speaker 02: It does appear that that's what the court said. [00:20:49] Speaker 02: I think one thing that's important to understand about that case is if you look at the briefing in that case, it does not appear that the parties engaged in any extensive analysis of the text of the regulations. [00:20:58] Speaker 02: So it appears that the party based its conclusions on it without the benefit of briefing. [00:21:03] Speaker 04: So wouldn't this reading have legal consequences in the Seventh Circuit at least? [00:21:12] Speaker 04: wouldn't a notice in the Seventh Circuit have legal consequences? [00:21:15] Speaker 04: They would have to have an en banc to overturn their decision in that case. [00:21:20] Speaker 02: I think that may well be true, but we're here in the D.C. [00:21:23] Speaker 02: Circuit. [00:21:23] Speaker 06: But we also have the repeatedly, you're talking about the willfully, which does seem to have this more totality of circumstances portion to it, but under repeatedly, we don't have that, right? [00:21:33] Speaker 06: For the, was it civil penalty? [00:21:38] Speaker 06: provision, it shall be deemed to be repeated where the employer has previously received notice through a responsible official of the Wage and Hour Division or otherwise authoritatively. [00:21:50] Speaker 06: So that, it seems to me, gives you yet another hurdle you would have to say. [00:21:56] Speaker 06: And I understand, I think there are reasons why the Department of Labor has these regulations, because they want it not to be super difficult to show that an intransigent employer was indeed [00:22:07] Speaker 06: intransigent. [00:22:08] Speaker 06: So on the merits, these are helpful regulations too, but they do seem to create final agency action in a case like this, no? [00:22:16] Speaker 02: I think actually, Your Honor, that you actually misread a little bit the regulation for the repeated violations. [00:22:23] Speaker 02: I think even plaintiffs concede that a violation is not deemed repeated merely based on the production of a letter like the one that's at issue here. [00:22:32] Speaker 02: I think the regulations say [00:22:33] Speaker 02: The violation shall be repeated where the employer has previously violated the statute. [00:22:39] Speaker 02: And then there's a proviso saying as long as there was some kind of notice of some kind of prior violation. [00:22:44] Speaker 06: So presumably your letter shows you think they violated it now. [00:22:48] Speaker 06: And that's why the letter puts them on notice. [00:22:50] Speaker 06: And then if they violate it again, which in an employment setting for Fair Labor Standards Act, every paycheck, they violate it, no? [00:22:58] Speaker 06: It seems like the repeated would be pretty easy to establish. [00:23:02] Speaker 02: Or what am I missing? [00:23:03] Speaker 02: But the way that the agency actually interprets its repeated regulations and the way it applies them is actually that it basically requires that the two violations take place in two different investigation periods. [00:23:15] Speaker 02: So it's not going to impose civil penalties on an employer for a repeated violation based on the same violation on this day and tomorrow as well. [00:23:27] Speaker 02: And how long is an investigation period again? [00:23:29] Speaker 02: They're typically two years, I believe, is my understanding. [00:23:32] Speaker 03: I thought the parties had agreed. [00:23:34] Speaker 03: I thought the opposition stood up here and agreed that you've got to prove the first violation. [00:23:39] Speaker 03: Really getting notice now is not proof that they violated. [00:23:44] Speaker 03: That's exactly right, and that was the point I was trying to make. [00:23:47] Speaker 02: I think that's exactly right. [00:23:49] Speaker 02: And I think that's the important point with respect to the repeated violation argument. [00:23:53] Speaker 02: Plaintiffs argue that a future violation of the statute will be repeated as a matter of law in a future civil penalty proceeding, but it's simply not true because the agency must also prove that the prior violation actually took place. [00:24:05] Speaker 02: And it has the burden to prove it from scratch without reliance on the letter. [00:24:09] Speaker 02: So the only function that a letter like this serves in the future civil penalty proceeding with respect to repeated violations [00:24:15] Speaker 02: is that it can be used to fulfill the notice requirement. [00:24:18] Speaker 02: We don't think that the legal consequences theory should embrace legal consequences that are narrowly defined as a legal consequence with respect to a single element. [00:24:27] Speaker 02: Why is that? [00:24:28] Speaker 04: Why, when you use the words legal consequences, if the effect of something is to eliminate one of the two requirements you have to show, that seems like a pretty strong legal consequence. [00:24:39] Speaker 02: I think that I want to give the answer. [00:24:41] Speaker 02: I also think that actually this court doesn't need to address that question. [00:24:44] Speaker 02: So I want to address both of those. [00:24:45] Speaker 02: But the answer to your question is that that can't possibly be the theory. [00:24:48] Speaker 02: And part of why we know that, that theory basically would be that as long as agency action is some kind of but for cause of liability down the road, then it's final agency action. [00:24:57] Speaker 02: But we know that that's not true. [00:24:59] Speaker 02: We know, for example, that when an agency files an administrative complaint, [00:25:03] Speaker 02: That's, of course, a but poor cause of any liability down the road, but we know from... But you can challenge the complaint. [00:25:09] Speaker 04: That's the whole point. [00:25:10] Speaker 04: You can't challenge that. [00:25:12] Speaker 04: If it's the case that it deemed means what it seems on its face to me, then you couldn't challenge an element. [00:25:18] Speaker 04: I mean, imagine if [00:25:20] Speaker 04: The law says if you kill somebody, you're guilty of murder regardless of your intent. [00:25:29] Speaker 04: Well, it has a legal consequence. [00:25:30] Speaker 04: The words regardless of intent have a legal consequence. [00:25:33] Speaker 04: They eliminate a normal element of the offense. [00:25:38] Speaker 04: You keep talking about all the facts and circumstances. [00:25:41] Speaker 04: What other facts and circumstances would be relevant here with respect to the knowledge question? [00:25:46] Speaker 02: Other facts would include, you know, an employer could include facts such as that they sought out advice from counsel. [00:25:53] Speaker 04: We already know that though. [00:25:54] Speaker 04: We already know they have advice from counsel because their counsel has said that they're not liable for this. [00:25:58] Speaker 02: Right, so our point is that they would introduce evidence of that in the future enforcement proceeding, and then there would be a factual finding as to whether or not they knew that their actions were unlawful, or that it would also be relevant to whether they acted in reckless disregard of their legal obligations. [00:26:17] Speaker 04: Well, we already know they have a lawyer's view on this. [00:26:22] Speaker 04: What else is there? [00:26:24] Speaker 04: They have the notice and they have the lawyer's view, now what? [00:26:27] Speaker 04: So is your view that they're free and clear now? [00:26:30] Speaker 04: They don't have knowledge because their lawyer said no? [00:26:33] Speaker 04: Or there's something more to this? [00:26:34] Speaker 02: Well, that would be, you know, a factual determination for a future court. [00:26:37] Speaker 02: I can't, I'm not gonna pine sort of on whether or not that would amount to knowledge or not. [00:26:41] Speaker 02: The point, the only point that this court needs to be worried about is whether or not the letter would be sufficient to establish knowledge, and it plainly is not necessarily dispositive as to knowledge. [00:26:50] Speaker 04: It's not dispositive, but without it, there'd be no, you wouldn't have an argument about their knowledge, would you? [00:26:56] Speaker 02: No, that's not correct. [00:26:59] Speaker 02: I think if you look at the case law that has built up around the kind of willfulness inquiries, you look at lots of different kinds of evidence, like for example, was the employer given some kind of other kind of information, maybe a handout about how the Fair Labor Standards Act works? [00:27:14] Speaker 02: Has the employer been part of litigation, some other litigation where it was held to have violated the Fair Labor Standards Act? [00:27:20] Speaker 02: There's a whole range of types of evidence that could be used. [00:27:23] Speaker 06: But aren't there, if you combine, isn't it the case that with a willful violation, the statute of limitations is longer, it's three years instead of two years? [00:27:32] Speaker 06: That's correct. [00:27:32] Speaker 06: And so if you combine that with, [00:27:38] Speaker 06: At least it should be that the plaintiff has pleaded, adequately pleaded a willful violation if the plaintiff can plead that they received this letter, that they know that Raelon is on notice, and even though it's between two and three years, the case is timely. [00:27:54] Speaker 06: That case is not going to be thrown out on statute of limitations grounds. [00:27:58] Speaker 02: But I do think further evidence could be submitted for purposes of determining statute of limitations issues. [00:28:04] Speaker 02: That's not something that plaintiffs have argued. [00:28:06] Speaker 06: But it's a legal consequence that there's a case that can pass through 12b6 because of this regulation that wouldn't otherwise be able to. [00:28:15] Speaker 06: It would be deemed to be time barred. [00:28:18] Speaker 06: It seems like that right there, that's a legal consequence now. [00:28:20] Speaker 06: I think that's only true if you're accepting the regulation to have the meaning that the plaintiffs... Not necessarily. [00:28:25] Speaker 06: I think that when you say there would be further factual development, not at the pleading stage. [00:28:30] Speaker 02: I don't think that that can be enough, Your Honor, and that's not an argument that the plaintiffs have made here with respect to the willfulness to establish a legal consequence. [00:28:42] Speaker 02: Why not? [00:28:44] Speaker 02: I guess I don't see why there wouldn't be the possibility of an employer responding with some additional information as to willfulness about the actual evidence that's in play. [00:28:58] Speaker 02: And I think that that was after discovery. [00:29:00] Speaker 02: I think that's possible, but I don't know that you can have a legal consequence simply because you're forced to go through one stage of the proceedings that you would not otherwise be forced to go through. [00:29:09] Speaker 02: Obviously, that would be somewhat inconsistent with the Supreme Court's holding in cases like FTC standard versus Standard Oil and the like. [00:29:17] Speaker 02: I want to get back to one other point regarding the repeated [00:29:21] Speaker 02: violation regulations. [00:29:23] Speaker 02: Earlier I noted that even if you think that agency action can have legal consequences if you just focus narrowly on with respect to a particular element for proving liability down the road. [00:29:37] Speaker 02: Even if you think that that theory is right, then we still don't have any legal consequences here, and that's really important to understand. [00:29:43] Speaker 02: And that's because of the facts of this case. [00:29:46] Speaker 02: For this determination that's at issue here, which is the agency's determination that Rialana's consignors' volunteers are employees covered by the Act, for that to have legal consequences with respect to the notice requirement in the civil penalty regulations, it would have to be the case that if the agency had never communicated its conclusions to Rialana, [00:30:06] Speaker 02: So the paragraph about consignors' volunteers was just omitted altogether, that there would be some kind of, that Raelana would be in some kind of different position with respect to the notice element of the civil penalty regulations, but that's just simply not the case. [00:30:19] Speaker 02: Even if the agency had never told Raelana about its conclusions with consignors' volunteers, and instead had only told Raelana about its conclusions regarding the distinct set of Employees 39 managers, [00:30:30] Speaker 02: where at which the agency also concluded Rayalana was in violation with respect to those employees. [00:30:35] Speaker 02: Then down the road in a civil penalty proceeding, that notice requirement would be fulfilled by the notice to Rayalana with respect to the 39 managers. [00:30:45] Speaker 02: Therefore, there's simply no legal consequences on the facts of this case to the agency action that's challenged here, which is the agency's determination regarding consignors' volunteers. [00:30:56] Speaker 03: Why did you concede that there's final action, the first part of the benefit? [00:31:03] Speaker 02: The government did concede that in the district court. [00:31:06] Speaker 02: We haven't conceded it in the Court of Appeals. [00:31:08] Speaker 03: We haven't addressed it in the Court of Appeals because we- Well, I mean, you're in a hopeless situation. [00:31:12] Speaker 03: That's the scenario, which is what I understood. [00:31:15] Speaker 03: You conceded it below. [00:31:16] Speaker 03: I don't know what you could say now. [00:31:17] Speaker 03: You conceded it, and you certainly haven't confessed it in here. [00:31:20] Speaker 03: I'm just curious as to what is your thinking [00:31:23] Speaker 03: Because there are cases that you could have argued that this is really interlocutory, and we would never get in the middle of it. [00:31:32] Speaker 03: I was utterly perplexed at how you indicated this, and it certainly undercuts a lot of the rest of your cases. [00:31:40] Speaker 02: Your honor, it is our considered view that the first element is not satisfied, the consummation element is not satisfied. [00:31:47] Speaker 02: We haven't pressed it because of the very reason that you identified it was something that we conceded in the district court. [00:31:52] Speaker 02: But we do think that it would be very odd, beyond strange, for a letter like this that's issued by an intermediate level official who has no authority. [00:32:01] Speaker 02: I'm not pressing it. [00:32:04] Speaker 02: Of course, this court has the discussion to consider any arguments that were waived. [00:32:08] Speaker 03: That's a real thin read. [00:32:09] Speaker 03: I just wondered why the concession was made below. [00:32:13] Speaker 02: Right, and all I can say is that our considered view certainly is that this was not the consummation of agency decision-making process, decision-making, and we haven't pressed it for the reasons that you identified, but this Court certainly could decide the case on those. [00:32:29] Speaker 02: Why wouldn't it be if we were to consider that? [00:32:31] Speaker 02: What would you point to? [00:32:32] Speaker 02: Well, if you look at the statutory and regulatory provisions that govern how the agency goes about making decisions, final decisions that are authoritative and have legal effect, the way the agency does that is that it first starts by doing investigations, but it then makes decisions having legal effect only by pursuing either civil action in district court against an employer or by pursuing [00:33:00] Speaker 02: administrative remedies before an ALJ for civil penalties and so forth. [00:33:04] Speaker 02: That's how the agency comes to, you know, consummates its decision-making process with respect to whether an individual employer is violating the law. [00:33:14] Speaker 02: It would be very odd for this court to hold that [00:33:17] Speaker 02: A decision like the one at issue that's issued by an agency decision maker who has no authority to buy in the agency as a whole is somehow subject to judicial review. [00:33:27] Speaker 04: Well, that again depends. [00:33:28] Speaker 04: The agency has authority to issue regulations. [00:33:31] Speaker 04: If we read the regulation the way the Seventh Circuit reads it. [00:33:34] Speaker 04: then that official does have the authority to bind the agency in the sense of giving notice. [00:33:41] Speaker 04: If we read Dean to be the advice of a responsible official, then the agency has announced that is the end on the question of knowledge. [00:33:50] Speaker 02: Right? [00:33:51] Speaker 02: I don't think that's not the way that the agency reads its regulations. [00:33:54] Speaker 04: When is it read it the other way? [00:33:56] Speaker 04: Can you point us to something where it's read it the other way? [00:33:59] Speaker 04: The way you're reading it now. [00:34:01] Speaker 02: Just to be clear, what I'm saying, and I think maybe I'm not being clear, what I'm saying is that the agency notice at issue here would satisfy the notice requirement within the meaning of the regulation. [00:34:12] Speaker 02: This is a responsible official within the meaning of that. [00:34:14] Speaker 04: No, I understand. [00:34:14] Speaker 04: The question is the meaning of deemed, right? [00:34:16] Speaker 04: And you're taking the position that deemed doesn't mean that you're subject to it. [00:34:21] Speaker 04: It means that it's one piece of evidence. [00:34:23] Speaker 04: That's your position, right? [00:34:25] Speaker 02: That's correct. [00:34:25] Speaker 02: When you read it together with subsection C1. [00:34:27] Speaker 04: And where has the agency said that before the briefs today, or in this case? [00:34:34] Speaker 02: Your Honor, I don't think the agency has spelled it out to the degree that we have here, and that's simply just because the issue doesn't come up very often. [00:34:42] Speaker 04: Well, it came up in the 7th Circuit. [00:34:44] Speaker 04: It came up in the 1st Circuit. [00:34:46] Speaker 02: You know, it came up very briefly in the Second Circuit. [00:34:49] Speaker 02: If you look at the Seventh Circuit briefs, I think you'll see that this issue was actually not teed up at all. [00:34:53] Speaker 02: And in fact, if you look at the Seventh Circuit briefs, I think you'll see that the government there said that a letter like this would be used as one piece of evidence in future civil penalty proceedings. [00:35:01] Speaker 02: It actually didn't say anything more beyond that. [00:35:03] Speaker 02: It certainly didn't say anything consistent with it. [00:35:05] Speaker 02: theory that plaintiffs are espousing. [00:35:07] Speaker 02: If you look at the Bay State briefs, again, the government certainly wasn't espousing. [00:35:12] Speaker 04: But in all the time since then, 1998, 1997, 1998, the agency has not expressed a view on this question. [00:35:21] Speaker 04: Is that what you're saying? [00:35:22] Speaker 02: That's right. [00:35:23] Speaker 02: I think, well, there may be, you know, there are a lot of different administrative proceedings so far that I haven't read all the briefs in all of the cases. [00:35:31] Speaker 02: But to my knowledge, the agency hasn't expressed, you know, a definitive view kind of one way or the other. [00:35:38] Speaker 04: And is there an ALJ decision that's said that just one piece of evidence, it's not everything or anything like that? [00:35:45] Speaker 02: Yeah, I'm not aware of any ALJ or administrative review board decisions that have addressed that. [00:35:53] Speaker 02: But again, the issue just simply doesn't really come up a huge amount. [00:35:56] Speaker 03: The fact that it- So you're looking for our deference now? [00:36:00] Speaker 03: You can come into litigation and promulgate this interpretation, and we should defer to it. [00:36:05] Speaker 02: We do think our deference would be appropriate. [00:36:07] Speaker 02: We think our interpretation is not inconsistent with the regulation, and is also not plainly erroneous. [00:36:13] Speaker 04: presented just for the purposes of litigation and your long time or at least some time view. [00:36:19] Speaker 04: It includes all those things to get our arguments. [00:36:21] Speaker 02: That's correct. [00:36:22] Speaker 02: Those are also factors. [00:36:24] Speaker 02: I'd just like to emphasize the plaintiffs haven't been able to point to a place where we've taken the opposite position, at least certainly since base date. [00:36:31] Speaker 02: And the agency's current view of the willfulness regulations is certainly informed by the First Circuit's decision in base date and the idea that it needs to ensure that it's reading its regulations consistent with the Supreme Court standards in McLaughlin. [00:36:46] Speaker 04: So what did the letter mean, which says, if at any time in the future you're [00:36:50] Speaker 04: firm is found to have violated the monetary provisions of the FLSA, it will be subject to such penalties, that is, willful violations penalties. [00:36:59] Speaker 02: I think all that that was trying to communicate was that if there were a future violation, that those civil penalty provisions would govern. [00:37:06] Speaker 02: They would be the ones that would be applicable. [00:37:08] Speaker 04: That's what you think will be subject to a violation? [00:37:11] Speaker 02: I do think that those are synonymous. [00:37:12] Speaker 04: It's kind of a scary way to say that. [00:37:14] Speaker 04: I'm sorry, what's that? [00:37:14] Speaker 04: It's kind of a scary way to say that. [00:37:17] Speaker 04: If you say, well, you know, if you do this in the future, you can make an argument about, we are going to make an argument about it, and we're going to take the position. [00:37:25] Speaker 04: That's one thing. [00:37:25] Speaker 04: If you say you will be subject to these penalties, [00:37:28] Speaker 02: I think it's important to understand what the purpose of that paragraph is. [00:37:31] Speaker 02: The purpose is to ensure that folks are on notice that they could be on the hook down the road. [00:37:36] Speaker 04: Or that they are on the hook. [00:37:37] Speaker 04: That is the question. [00:37:39] Speaker 04: To be or not to be. [00:37:40] Speaker 02: Yeah. [00:37:41] Speaker 02: I do think it's a plaintiff's reading of that paragraph is over reading it, and I don't think that will be subject to means that you will necessarily be found to be. [00:37:48] Speaker 04: Judge Wood's reading of it also. [00:37:50] Speaker 04: And although it's only in dictum, it's the 11th Circuit reading of it also. [00:37:55] Speaker 02: I actually don't think the 11th Circuit, I think the 11th Circuit simply repeated the language of the regulation and certainly had no occasion to evaluate it since there was no agency letter that was at issue in there. [00:38:07] Speaker 02: And again, the 7th Circuit, you're correct, it appeared that the 7th Circuit read what you're reading into that language, but I just simply don't respectfully disagree that that's the best way to read that language. [00:38:19] Speaker 02: And again, that issue simply was not one that was briefed in the 7th Circuit. [00:38:23] Speaker 04: What if it didn't mean what it said? [00:38:25] Speaker 04: hypothetically suggesting that it says. [00:38:27] Speaker 04: What if it means that's the end of the notice question? [00:38:30] Speaker 04: Government still takes the position that it's not final agency action? [00:38:34] Speaker 02: If that language means that they will definitely be found to be repeated, and I think that's a much more difficult question, and potentially that could be final agency action, although we wouldn't concede that that's so. [00:38:48] Speaker 02: I mean, I think, too, one thing to keep in mind when we're comparing this case to the Sackett case is that the way the civil penalty proceedings, the civil penalties operated in Sackett [00:38:56] Speaker 02: was that there was one civil penalty that the plaintiffs in Sackett could be on the hook for, for a violation of the statute. [00:39:03] Speaker 02: And then on top of that, if the government were able to prove a violation of the compliance order, i.e. [00:39:08] Speaker 02: the agency action at issue there, then the plaintiffs would be on the hook for a second civil penalty. [00:39:14] Speaker 02: So there was a very direct kind of causation between the compliance order and this increased amount of penalty. [00:39:20] Speaker 02: We simply don't have anything quite like that here. [00:39:22] Speaker 02: We certainly don't have any statutory or regulatory provision providing for [00:39:26] Speaker 02: you know, civil penalties for violation of a letter like the one that's at issue here. [00:39:32] Speaker 02: We only have civil penalties for repeated and willful violations of the statute, but before the agency can impose those kinds of penalties, it needs to prove up both a violation and a prior violation for the repeated [00:39:45] Speaker 02: penalties and then at that point it would then be required to do the notice element as well which as I said can be satisfied by the the notice regarding the managers and then for the willful civil penalty that the agency would need to prove that both the violation also the willful nature of the violation and again the letter could only be used as one piece of evidence in that that kind of penalty proceeding so we have something [00:40:09] Speaker 02: here that's quite different from the type of legal consequence that was at issue in Sackett. [00:40:18] Speaker 04: Well, the first part goes to the point that the original order decides a violation with respect to the first [00:40:28] Speaker 04: violation, right? [00:40:30] Speaker 02: I'm sorry, could you repeat that? [00:40:32] Speaker 04: Well, there's two issues there. [00:40:34] Speaker 04: What you say is in this case, they would be able to prove that the first order wasn't a violation. [00:40:39] Speaker 04: In second, they wouldn't because there was an actual order [00:40:44] Speaker 04: that bound them to do something right away. [00:40:46] Speaker 04: Here there is no order that binds them to do anything right away. [00:40:49] Speaker 02: That's correct. [00:40:50] Speaker 04: But the court seems to distinguish those as two different issues, one having to do with legal consequences and the other having to do with rights. [00:40:58] Speaker 02: That's correct. [00:40:59] Speaker 04: And the court doesn't say both are required to be final. [00:41:02] Speaker 02: That's correct. [00:41:03] Speaker 02: But my point, simply with respect to Sackett, and in particular its legal consequences analysis, is that the legal consequences that flowed from the compliance order there were much more significant and direct than what you could call legal consequences that flowed from the letter here. [00:41:18] Speaker 04: Well, there they flowed only from the litigating position of the government. [00:41:22] Speaker 04: And here, on the theory I'm suggesting, they flow from a regulation [00:41:30] Speaker 04: published by the agency. [00:41:31] Speaker 04: That seems different than just the litigating position. [00:41:33] Speaker 02: Well, in Sackett, the court assumed the government's litigating position because that litigating position was actually cut against the government's final agency action argument. [00:41:42] Speaker 02: So that's why the court was assuming the government's litigating position there. [00:41:45] Speaker 02: Here, of course, the government's litigating position actually cuts in favor of our argument. [00:41:49] Speaker 02: We're not suggesting that you should therefore buy it and proceed as was done in Sackett. [00:41:54] Speaker 02: And this court needs to decide whether or not the government's position regarding the interpretations of the regulations is correct, because if our interpretation is correct, we simply don't think that there is final agency action here. [00:42:06] Speaker 02: I'd also just like to note an odd consequence that would flow from this court's holding that there's final agency action here, particularly if it holds that the final agency action flows from the fact that a letter like this could be used in a dispositive sense to establish the notice element [00:42:23] Speaker 02: of the repeated violation for civil penalty proceedings. [00:42:28] Speaker 02: The odd consequence is that agencies would then, in response to such a holding, have the incentive or potentially want to simply remove such notice requirements altogether from their regulations so as not to... They could just define the meaning of deemed to be the one you're telling us today. [00:42:47] Speaker 04: They wouldn't have to do anything else. [00:42:50] Speaker 02: Right. [00:42:51] Speaker 02: When I was addressing the repeated regulation portion of the argument, which is a bit different from the willful violation portion. [00:42:57] Speaker 02: And that's where the deemed language comes in. [00:43:01] Speaker 02: So that is correct. [00:43:02] Speaker 02: If this court thought that the regulation meant not what the agency says, then potentially the agency could revise that regulation. [00:43:08] Speaker 02: But I think that the odd consequence of holding that there are legal consequences for the repeated. [00:43:13] Speaker 04: I'm sorry. [00:43:14] Speaker 04: The deemed is also in the repeated violation section. [00:43:17] Speaker 02: That's correct, although I don't think there's any dispute sort of there among the four. [00:43:22] Speaker 02: I don't think that language is doing any work for the parties in terms of kind of what's at dispute here. [00:43:28] Speaker 04: What do you think deemed means in B? [00:43:31] Speaker 02: In the repeated? [00:43:33] Speaker 04: Yeah, repeated violations. [00:43:34] Speaker 04: An employer's violation shall be deemed to be repeated where the employer previously violated and the employer has previously received notice. [00:43:43] Speaker 02: Right, I think the regulation is trying to explain what the definition of repeated will be for purposes of that section. [00:43:50] Speaker 02: That's what the work that's deemed is doing there. [00:43:54] Speaker 04: And what is the work of the notice in that? [00:43:57] Speaker 04: And what's the effect of the notice? [00:43:59] Speaker 04: Is that final as to the question of notice that they got this? [00:44:05] Speaker 02: You mean the if with the letter here be used you mean So I do think that the letter here could be used to establish that and it would be dispositive as to that as I said The though even if we didn't have the agency action that plaintiffs are complaining about here We only and therefore the whole paragraph about consignors volunteers were struck from the letter then we would still have a letter where plaintiffs were notified that they were in violation of the law with respect to this other group of employees these 39 managers and [00:44:33] Speaker 02: And therefore, that notice requirement would independently be satisfied. [00:44:38] Speaker 04: That's a different question. [00:44:39] Speaker 04: That's about what we do in this case. [00:44:40] Speaker 04: But if I'm trying to read the regulation altogether, you're telling me that the word deemed actually removes the element of notice. [00:44:47] Speaker 02: I'm not saying that, and so I apologize. [00:44:49] Speaker 04: In a repeated violation section. [00:44:51] Speaker 02: Right, I'm not saying that, so I apologize if that's what Your Honor thought that I was saying. [00:44:55] Speaker 02: We acknowledge that the notice requirement is one of the three elements that must be proven for a repeated violation civil penalty to be proven. [00:45:02] Speaker 02: It has two violations plus the notice. [00:45:05] Speaker 04: And it's the notice, but is the notice the end of it? [00:45:08] Speaker 04: Even if it's wrong, is the notice sufficient that there was notice? [00:45:13] Speaker 02: The notice is sufficient as to the notice element, regardless of whether it's wrong. [00:45:17] Speaker 02: It's not sufficient as to whether or not there was a violation or prior violation. [00:45:20] Speaker 04: So you're telling me that for purposes of B, deemed means that it is sufficient, but for purposes of C, deemed means something else. [00:45:30] Speaker 02: I understand Your Honor's question, but I don't think that they're inconsistent. [00:45:36] Speaker 02: I think that we have directives in subsection C that are a little bit at war with one another, and therefore we need to read them together. [00:45:45] Speaker 02: We have in subsection C1 that we know that the standard is knowledge or reckless disregard, and we know that that was meant to codify the McLaughlin standard. [00:45:53] Speaker 02: We also know from C1 that all the facts and circumstances have to be considered in evaluating willfulness. [00:46:00] Speaker 02: So then when we're looking at C2 and the statement that the receipt of the letter will be deemed knowledge, that has to be read together with subsection C1. [00:46:11] Speaker 06: One easy way to read it together is generally when you're proving willfulness, it's totality of the relevant circumstances, and then C2 has a codification. [00:46:21] Speaker 06: But if there's a letter, totality, you don't need to have the totality of the circumstances because you've got it. [00:46:28] Speaker 06: You, the plaintiff, have evidence that is at least presumptive as to willfulness. [00:46:33] Speaker 02: Yeah, I think that is certainly one of the most obvious reading of that. [00:46:37] Speaker 02: I think actually that reading, though, is contradicted if you look at the regulatory history. [00:46:40] Speaker 02: Because if you actually look at the regulatory history, the proposed regulation with respect to the willfulness regulation had something that was kind of an explicit version of what you just suggested. [00:46:50] Speaker 02: It said all the facts and circumstances will be considered except for [00:46:53] Speaker 02: you know, whether it's now in subsections C2 and C3 apply. [00:46:58] Speaker 02: When the agency, though, promulgated the final regulations, it took out that language about except for, and indeed, it noted that it was making some changes to the regulations in response to concerns that they were not consistent with the McLaughlin versus Richland SHU standards. [00:47:13] Speaker 02: So I think, with the particular regulation at issue here, I think that's simply not a reasonable reading of the statute. [00:47:22] Speaker 02: I'd just like to note one additional thing again about the argument that somehow we have final agency action here because this notice would be dispositive as to the notice element of the regulation. [00:47:39] Speaker 02: I think the consequence of a holding to that effect is that the agency in this case and agencies in other cases where there are notice elements [00:47:47] Speaker 02: that play a very minor role in some kind of liability, would then be very hesitant to include such notice requirements. [00:47:55] Speaker 02: Indeed, the agency could respond to their holding like that from this court by simply removing the notice element from the regulation altogether. [00:48:02] Speaker 02: And that would be very odd. [00:48:03] Speaker 02: At that point, [00:48:04] Speaker 02: Employers would be in a far worse position than they are now. [00:48:07] Speaker 02: They would not get judicial review of notice from the agency of letters like this from the agency. [00:48:13] Speaker 02: And then they would be on the hook for repeated violations of the statute in a civil penalty proceeding based solely on a violation and a prior violation of the statute. [00:48:22] Speaker 02: and they wouldn't have the protection that is now afforded to them by the notice element of the regulation. [00:48:28] Speaker 02: It's a very odd result and certainly suggests that this is not final agency action in this case. [00:48:40] Speaker 02: The court has no further questions. [00:48:41] Speaker 02: We ask to affirm. [00:48:43] Speaker 02: Thank you. [00:48:51] Speaker 04: Your Honor, just a couple of... Before you do, could you respond to the last argument made by opposing counsel? [00:48:57] Speaker 01: Absolutely. [00:48:58] Speaker 01: If I understood her correctly, the idea was that this would remove the incentive for agencies to have this notice provision, and the result is that regulated parties would be worse off. [00:49:10] Speaker 01: In that circumstance, the notice provision is not the only protection in that regard. [00:49:15] Speaker 04: There are also due process protections, and there are... So imagine you wanted to know before you did something whether what you're doing violated the law, and you said, [00:49:28] Speaker 04: and they have a advice section which will provide advice, and you ask them, is this a violation of the law, and they say yes. [00:49:38] Speaker 01: Well, this court has a number of cases that involve opinion letters, and what emerges from these cases is more or less that you address them kind of case by case. [00:49:49] Speaker 01: You can have opinion letters that are basically abstract and tentative and full of the whole [00:49:54] Speaker 01: whole lot of hedging language by the agencies, in which case they're simply an agency's initial position. [00:50:01] Speaker 01: They don't have binding effect, and they don't have legal consequence. [00:50:05] Speaker 01: On the other hand, you have cases like national automatic laundry, where the agency, in fact the Department of Labor, issued an opinion letter that addressed [00:50:16] Speaker 01: the particular business model of a particular industry and said that everybody was in violation of the Fair Labor Standards Act. [00:50:23] Speaker 01: So it depends on the kind of notice letter that comes out. [00:50:26] Speaker 04: Well, don't you want, if you're a company, to get a clear notice letter as you can so that if they say it's OK, you're OK? [00:50:35] Speaker 04: It doesn't do you much good to get a, well, we'll give you a general answer, but you can't count on it in any way sort of answer. [00:50:41] Speaker 01: You do want an opinion letter, but again, this Court's cases are capacious enough to distinguish between opinion letters that have legal consequences and those that don't. [00:50:55] Speaker 01: As for the government's point that the result would be that repeated violators [00:51:00] Speaker 01: wouldn't have any notice. [00:51:02] Speaker 01: As I was saying, there are principles of fair notice and due process that protect individuals and regulated parties from being subject to penalties for repeat offenses without any kind of notice. [00:51:13] Speaker 01: I can continue talking, but [00:51:18] Speaker 01: Well, you certainly don't have to. [00:51:20] Speaker 01: I'll finish the two points that I wanted to raise on rebuttal. [00:51:26] Speaker 01: Second point as to willfulness. [00:51:29] Speaker 01: The government's argument as to the regulations. [00:51:32] Speaker 01: Having to do with willfulness, the government's argument is essentially that the regulations don't mean what they say, and that opposing counsel insists that this is the agency's position. [00:51:42] Speaker 01: That's patently absurd, Your Honor. [00:51:44] Speaker 01: It's been 15 years between the Seventh Circuit and First Circuit's decisions in 1998 and the 2013 determination letter here. [00:51:54] Speaker 01: The regulations never changed during that whole period. [00:51:58] Speaker 01: And in fact, to this very day, the field operations handbook of the Department of Labor, Section 352 F.B., I think, who cited it in her briefs on another proposition, it continues to repeat the willfulness standard verbatim. [00:52:12] Speaker 01: The notion that this is the considered position of the Department of Justice, rather than of the Department of Labor, rather than a litigating position by the Department of Justice trying to get its client out of court, it just doesn't make sense. [00:52:30] Speaker 01: The Department of Labor's Wage and Hour Division has a field operations handbook that we've cited in our briefing that discusses the standards for investigations. [00:52:42] Speaker 01: And in a section of that field operations handbook, which we cite in our briefing, it discusses the standards for willfulness. [00:52:48] Speaker 01: And it repeats the standard of the regulation, Section 578-3C, word for word, or virtually verbatim. [00:52:58] Speaker 01: The notion that the Department of Labor actually doesn't think that its regulations mean what it says is belied by the agency's own internal documents, setting out its own internal interpretation of those regulations. [00:53:10] Speaker 01: I take it it hasn't interpreted them, it just repeats them, you said? [00:53:13] Speaker 01: It repeats them. [00:53:14] Speaker 01: It doesn't adopt the narrowing construction that the Department of Justice is trying to persuade the court to adopt in this case. [00:53:21] Speaker 03: Would you be making the same argument? [00:53:23] Speaker 03: Or would you maybe be making an argument challenge in the agency that they did not have the regulation as such? [00:53:29] Speaker 03: But wait a minute. [00:53:30] Speaker 03: They had a policy statement saying in these kinds of situations, and they list a number, your client's situation being one, they say in our view, this kind of situation is covered by the act. [00:53:47] Speaker 01: As in, instead of sending a determination letter, they just sent out a policy statement. [00:53:54] Speaker 03: They didn't send it out, they just posted it. [00:53:57] Speaker 03: They make it very clear, this is a policy statement, we're not looking at anybody in particular, but this is our thinking. [00:54:04] Speaker 01: We would argue in that case potentially that this is a case with coercive effect. [00:54:10] Speaker 01: But then again, you're exactly right, though, that that kind of case would be a much harder argument. [00:54:16] Speaker 01: That case would start to look more like cases like Center for Auto and Safety or National Association of Home Builders, cases where an agency really does put out kind of abstract guidance. [00:54:30] Speaker 03: It's a policy statement that thinks about a number of scenarios, and the agency says, you think part of you in this kind of case would be that the law covers it. [00:54:39] Speaker 03: We're not adjudicating anything. [00:54:41] Speaker 01: And I certainly agree, Your Honor, that that would be a much harder case. [00:54:44] Speaker 03: Wouldn't you tell your client, we can't sue now? [00:54:47] Speaker 01: I'm not sure I'd throw out the white flag immediately, Your Honor, but I'd certainly counsel them that it would be a harder case. [00:54:56] Speaker 03: If you're going as far as you're going, it makes no sense to me because an agency's got to give a regulated community some kind of notice. [00:55:02] Speaker 03: And we set policy notice, the agents say this is what we're thinking about. [00:55:05] Speaker 03: It doesn't mean we'll win if we rest an action on this ground, but we want you to know this is what we're thinking and we might. [00:55:13] Speaker 01: On the other hand, Your Honor, as I said, it would be a harder case, but then there are cases like Barrett Goldstrike Mines, where you have an ostensibly non-binding guidance from an agency, where this court determines that the ostensibly non-binding material actually has binding effect. [00:55:32] Speaker 01: So I wouldn't say that the case would be entirely over in that regard, because there are cases, this Court's cases, where... So as you describe them as capacious, you might describe them as inconsistent with each other? [00:55:46] Speaker 04: Your Honor, I don't consider them inconsistent. [00:55:49] Speaker 01: I think that the... I think that... I mean, we can talk about cases individually, but... Well, they're all presackets, so there must... The sacket must make some difference, doesn't it? [00:56:00] Speaker 01: They – SACA, in our view, is consistent with – is basically consistent with them. [00:56:06] Speaker 01: I mean, the cases can be hard to work through. [00:56:11] Speaker 03: SACA is not a policy statement case. [00:56:12] Speaker 01: No, SACA is not a policy statement case. [00:56:14] Speaker 03: It's directed action at a regulated party. [00:56:16] Speaker 03: That's – you know, I didn't understand your argument. [00:56:18] Speaker 01: It makes sense. [00:56:19] Speaker 03: Yes, that's certainly right. [00:56:20] Speaker 03: A policy statement is not a directed action at a particular regulated party, but it certainly would affect certain regulated parties. [00:56:27] Speaker 03: Thank you. [00:56:27] Speaker 01: All I mean to say, Your Honor, is that this Court's cases involving non-binding agency documents, I think they're internally reconcilable. [00:56:36] Speaker 01: I don't think, I think the District Court was mistaken in believing that there is an inconsistency between this Court's cases in Sackett or within this Court's cases internally. [00:56:48] Speaker 01: We can talk about the ins and outs of any given case. [00:56:51] Speaker 01: But it seems to me that the cases where this court finds no final agency action typically involve cases where there is, say, a hypothetical agency guidance that talks about facts and abstract terms and doesn't have any legal effect. [00:57:06] Speaker 01: In contrast, cases where there is final agency action that's reviewable [00:57:12] Speaker 01: This court says, okay, as a matter of impractical effect, like in GE or in Barrett Goldstrike, impractical effects that are coercive and binding or have legal effect. [00:57:26] Speaker 01: I wouldn't throw up your answer. [00:57:28] Speaker 01: I wouldn't throw up one's hands and say that there's internal inconsistency. [00:57:34] Speaker 01: But if you do, at the very least, then you would want to recognize that the Supreme Court's decision in Sackett sweeps it all aside and resets the playing field. [00:57:44] Speaker 04: Any other further questions? [00:57:46] Speaker 04: We'll take the matter under submission. [00:57:47] Speaker 04: Thank you. [00:57:47] Speaker 01: Thank you, Your Honor. [00:57:48] Speaker 01: We'll take a brief recess.