Tuesday, March 23, 2010

Reading the Tea Leaves of New Process Steel Oral Argument

4United States Supreme Court 112904 Although I posted earlier today over at the ACSBlog my thoughts on the New Process Steel case that was argued today in the U.S. Supreme Court, now that the oral argument transcript has been distributed I have some additional thoughts on the lawfulness of two-Board Member NLRB decisions. 

For background purposes, here is what I wrote over at the ACSBlog:

This morning, the U.S. Supreme Court heard oral argument in an important case at the intersection of labor law, statutory interpretation, and administrative law. In New Process Steel, L.P. v. NLRB, on appeal from the Seventh Circuit Court of Appeals, the Court will decide whether a two-member National Labor Relations Board (NLRB or Board) has the authority to engage in adjudication on behalf of the Board. The Board has operated with only two members for over two years, since the appointments of two Board members expired on December 31, 2007. Just before that time, effective midnight, December 28, 2007, the Board delegated all of its powers to a group of three members to continue to issue decisions and orders as long as a quorum of two members remained. Since that time, the two Board members remaining, acting as a quorum of the group, have issued over 500 decisions.

The issue is whether Section 3(b) of the NLRA allows for such delegations. Sheldon Richie of Austin, Texas argued for New Process and Deputy Solicitor General Neal Katyal argued for the United States/NLRB.

Some thoughts:

1.    Richie starts by overstating his case (especially because the lower appellate courts are split and in split in favor of the other side of the argument): "The National Labor Relations Act clearly states that at all times, a quorum of the board will be not less than three members." (my emphasis added).  Justice Scalia cuts him off almost right away (perhaps before he can cause too much damage to his side) and makes clear that Richie is only talking about Board decisions, not issues decided administratively or decisions delegated to the General Counsel by the Board:

MR. RICHIE:  . . . But we also believe that when the membership of the group falls below three, that the delegee group's authority to make adjudicatory decisions lapses.

JUSTICE SCALIA: I understood that argument and I thought that was the only one you were making. But you are making a broader one, that it also happens whenever the -- whenever the board's quorum disappears.

MR. RICHIE: You are correct, Justice Scalia. We are making that argument . . . .

Although other issues are discussed after this, I never get the sense that the natural employer proponents (Scalia, Alito, Kennedy, and Roberts) understand the argument that Richie is making. On numerous occasions, members of the Court describe their confusion.

2.    Justice Scalia then questions what the consequences would be of so holding:

JUSTICE SCALIA: So the regional offices can't function, of the NLRB?

MR. RICHIE: Well, we believe they can function. They can receive, for example, unfair labor practices complaints. They can't make adjudicatory decisions. And we think that that is exactly what -

JUSTICE SCALIA: Can the board pay salaries?

MR. RICHIE: We believe they can, because there is probably a different statute that enumerates that, Justice Scalia, other than this statute . . . .

JUSTICE SCALIA: I'm really reluctant to rely upon this first argument that you are making, because I really don't know what it does to all of the functioning of the board.

Have to admit: didn't see that one coming from a Justice that I thought would readily disagree with the 7th Circuit conclusion that the NLRB was adjudicating disputes with proper authority.

3.  Justice Ginsburg seems to champion the Board's approach to the issue:

JUSTICE GINSBURG: But here the court of appeals said that the Act does two things. First, it said that the full board can delegate full powers to any three-member group. That was step one, and that was done here.

And then it says there's this rule that a quorum is three, but then it said: Except as to one of these three-member groups that has been designated, except, and there the quorum is two. So why doesn't the statute answer the question that, yes, a quorum is three, except when it's two?

4.  The next discussion between Richie and the Justices is about whether the three members who formed the Board prior to the last Board Member's appointment expiring were "the Board" or just an "agent of the Board."  Justice Ginsburg maintains that the NLRA doesn't say anything about a three-member group that has a quorum of two being an agent of the board. Richie responds that common law principles of agency and principal make that delegee group an agent. Justice Kennedy appears to agree with Ginsburg: "The statute does use the word 'quorum' twice and, as Justice Ginsburg has pointed out, except that two members -- in its last phrase it uses the word 'quorum' twice: 'Except that two members shall constitute a quorum.' It doesn't say two members may act . . . . It says shall constitute a quorum."

5. Justice Breyer takes another tact:

JUSTICE BREYER: Can you -- can you -- if you are right, it seems to me you should have a very clear, concise answer to the question that I'm just going to ask you. And this is the question: Imagine that there was no delegation, none. Now we have five members; is that right? One of them dies. So there is a vacancy. Now, can the remaining four exercise the Board's power?

MR. RICHIE: Clearly.

JUSTICE BREYER: Clearly. Okay. So what is the difference between the situation I just described and this situation where the Board simply delegated its power to three people and one of them dies? What's the difference? I can't find any
difference in the language. So what is the difference?

MR. RICHIE: Justice Breyer, the difference is that in this statute there is a clear statement that at all times the board must have a three-member quorum. In your hypothetical there were still four members. 

Breyer appears unmoved: "Except that two members shall constitute a quorum of any group designated pursuant to the first sentence, which says "The board is authorized to delegate to any group of three all of the powers which it may itself exercise. So, what's the difference?"  Justice Sotomayor appears to agree: "I understand the word 'delegated' to mean it's given over its power to a subgroup. If it wants to take it back, it needs a quorum to do that. That's what I understand."

6. Here is perhaps Richie's best argument:

MR. RICHIE: Well, I think the problem is, Justice Sotomayor, that the delegation to a group of three is indeed a valid delegation. We don't contest that. But what we have here is a phantom group. And what the -- what the board said, because member Kirsanow's term expired in December, about 11 days after the delegation. And if you look at the minutes of the board when they are delegating to the group, it says in the minutes that they "are continuing to be a two-member quorum of a three-member group," as if member Kirsanow is a phantom. It's a fiction. The group ceases to exist and the board -- it's not just that the board falls below three and the board ceases to exist with all delegated powers to this group. The group ceases to exist.

Justice Kennedy does not appear to be buying what Richie's selling: "But that brings you back to Justice Breyer's hypothetical. There's five members on the board. Clearly they can delegate under the statute. Now there are only four members. Something happens to the fifth. Under your theory, the entity that originally delegated no longer exists and therefore the group, the entity that received the delegation of powers, must cease, must cease to act."

Richie responds: "It's not the same because the statute contemplates vacancies on the board and multiple vacancies, so long as they don't go below three."

7. The vacancy clause of Section 3(b) comes into focus. Justice Breyer reasserts Richie's argument for him: "Your answer to my question is that the vacancy clause applies to the full board but not to the group . . . . And now I see how you could read the statute that way . . . . [but given the upheaval your reading would cause,] why should it be read your way? I mean, I can think of a lot of reasons why not."  And to me, this is the crux of the case - the statute is susceptible to at least two reasonable reasons and the Board's reasoning not only save 500 Board decisions, but the Board's interpretation of its statute should be deferred, under administrative law principles, if its interpretation is reasonable.

8.  Perhaps because Deputy General Katyal realizes that things could have not been going better for him, his argument is more cautious and less interesting.  The government's argument in a nutshell:

We agree that the plain text controls this case and there are three features to that text. First, section 153(b) permits delegation of any or all of the board's power to three or more members. Second, that section sets out a general quorum rule of three members. And third as Justices Alito --Justices Alito, Kennedy and Ginsburg have pointed out, there is the phrase "except that" in the rule, a special quorum provision that sets up panel quorums at two members.

And in this case, faced with a vacancy crisis, the board validly delegated its powers in December 2007 to a three-member panel, and Petitioners have never contested otherwise. Rather, they argue that when the board dropped it down to two members . . . . [it lost its power.]

Katyal effectively encapsulates his argument later as "It's a three-member quorum requirement, 'except that.'"

9.    Justice Stevens indicates where he is troubled by the current situation: "When you are talking about individual cases it's easy. Sure, one member dies; the other two can finish. But you are talking about long-run governance of the board. The two members -- two members shall constitute a quorum of any group designated pursuant to the first sentence. Now, 2 years later, after -- what is the group designated pursuant to the first sentence at the time of the decision 2 years later? "  

Katyal responds: " . . . with respect to 2 years later, I submit to you that that penultimate sentence in 153(b) [Section 3(b)] is met. That is a designated group pursuant to the first sentence."

Justice Stevens later asks: "Do you think Congress would have authorized this [back in 1947 when Taft-Hartley was enacted]? Katyal responds: "As opposed to shutting down the entire board, yes, Justice Stevens."

10.  Katyal addresses the "phantom board member" argument this way with Justice Ginsburg:

JUSTICE GINSBURG: Is your point that official acts done stay in effect even though the official is gone, until the official's successor in office is appointed and that successor can remand the instruction?

MR. KATYAL: That's -- that's precisely correct.

All in all, this case is less about labor law and more a fascinating look at how the Court deals with statutory interpretation issues when the language of the statute is susceptible to more than one reason and the legislative history does not speak directly on the issue.

What surprises me most, is the magic words of "Chevron deference" did not come up at all during the entire argument.  Again, I think a prudent way to decide this case is to say that the Court will defer to a reasonable interpretation of the Board's understanding of its own statute if it is not irrational or inconsistent with the NLRA.  Since there does not appear to be the necessary irrationality or unreasonableness in the way that the Board has decided to hear these cases, the practice should stand.

My prediction: 9-0 in affirming the 7th Circuit and upholding the 2-member Board decisions (out on a limb, I know, but that's where this argument leaves me).

BTW, interesting stats offered by Katyal re: the 2-member Board: there have been 586 two-member decisions and about 70 or so have been set aside because they involve questions about overturning precedent or novel issues, and so they haven't reached agreement in those.



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1. Paul, thank you for a wonderful post! I'd already read the transcript, but this still helped me get a better grasp on Katyal's argument in particular.

2. I don't mean to pee in your cornflakes, but don't you mean that you predict the Court will uphold the 7th Circuit? :p

Posted by: AC | Mar 23, 2010 4:28:33 PM

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