The opinion of the court was delivered by: Tenney, District Judge.
Plaintiffs, approximately 100 migrant farmworkers ("migrant
workers" or "workers"), instituted this consolidated action
under the Fair Labor Standards Act of 1938, as amended,
29 U.S.C. § 201 et seq. (1988) ("FLSA"), against defendants, six
farm owners in Orange County, New York ("owners").*fn1 The
workers seek to recover "rent" deducted from their wages by the
owners for the on-site housing which the owners provided during
the 1978-83 growing seasons. The workers argue that in
deducting the "rent" from their wages, the owners violated the
minimum wage provisions of the FLSA. See
29 U.S.C. § 206.*fn2
In a prior decision, the court stayed the proceedings in this
case, pending an administrative hearing before an
Administrative Law Judge ("ALJ") and a final determination by
the United States Department of Labor's Wages and Hour
Administrator ("Administrator"). See Soler v. G & U, Inc.,
477 F. Supp. 102 (S.D.N.Y. 1979). In November 1983, the
Administrator issued his final decision, in which he found,
inter alia, that the on-site housing was primarily for the
benefit of the workers rather than the owners, and that its
fair rental value was therefore deductible from the workers'
wages. Administrator's Decision, Exh. E to Plaintiffs' Notice
of Motion for Partial Summary Judgment ("Plaintiffs' Notice of
Motion"). Thereafter, the workers and the owners sought
judicial review of the Administrator's decision under the
Administrative Procedure Act, 5 U.S.C. § 706(2) (1988) ("APA"),
and cross-moved for summary judgment pursuant to Fed.R.Civ.P.
This court found that the housing provided to the migrant
workers was primarily for the benefit and convenience of the
owners, and that, therefore, its costs could not be included as
"wages" under § 203(m) of the FLSA.*fn3 After concluding
that the Administrator failed to consider all the relevant
factors, this court set aside — as arbitrary and capricious —
his determination that the housing was primarily for the
benefit of the workers, and granted summary judgment in favor
of the plaintiffs. Soler v. G & U, Inc., 615 F. Supp. 736
(S.D.N.Y. 1985). The Second Circuit reversed, finding that this
court had exceeded the scope of its review authority under the
APA, and that the Administrator's decision was not arbitrary
and capricious. The case was remanded for this court "to review
the Administrator's determinations relating to the fair rental
value of the housing facilities." Soler v. G & U, Inc.,
833 F.2d 1104, 1105, 1111 (2d Cir. 1987), cert. denied,
488 U.S. 832, 109 S.Ct. 88, 102 L.Ed.2d 64 (1988). Once again, the
migrant workers and the owners have cross-moved for summary
judgment based on the administrative record.
For the reasons set forth below, the Administrator's decision
is affirmed in part and reversed in part. In addition, the
court's prior award of liquidated damages is replaced with an
award of prejudgment interest.
Defendant owners are in the business of growing and harvesting
crops such as onions, lettuce, and celery. In addition to their
permanent employees, the owners hire migrant workers on a
seasonal basis and pay them the hourly minimum wage. During the
main growing season, the owners provide on-site housing to most
of the migrant workers.*fn4 If housing were not provided, it
is unlikely that the workers would be able to obtain off-site
housing. Both sides agree that the migrant workers could not
afford to work for the owners if housing were not provided.
Soler, 615 F. Supp. at 739.
Prior to 1978, the on-site housing was provided to the migrant
workers free of charge. In 1978, however, Congress amended the
FLSA's minimum wage provisions to apply to agricultural
workers.*fn5 Since the FLSA provides that the wage paid to
an employee may include the reasonable cost to the employer of
furnishing the employee with lodging, see 29 U.S.C. § 203(m),
the owners began to charge the migrant workers for their
housing. From 1978-83, the owners charged each worker between
$8 and $12.50 a week for the lodging. In general, the owners
withheld $.25 per hour from the wages of each worker for whom
housing was provided.
Both appraisers agreed that their assignments were unique and
that the "market data" approach was the only viable method of
valuation in this case.*fn6 Administrator's Decision at 4.
In using the market data approach, a fair rental value is
determined by 1) comparing the property in question to similar
property in the general geographic area, 2) determining the
rental value of the similar property, and 3) making whatever
adjustments are needed to the rental value, if any, to reflect
the differences between the property in question and the
comparable property. Id.; HUD Appraisal at 7-8, Exh. C to
Plaintiffs' Notice of Motion.
In conducting his appraisal, the HUD appraiser examined fifteen
low income housing units in the general area of the owners'
farms. After eliminating both the high and low extremes of the
rental spectrum, the HUD appraiser calculated that the typical
rent for the rural housing was $20 per person, per week. HUD
Appraisal at 11. This figure was based upon an average
occupancy of two persons per bedroom and included adjustments
for utilities.*fn7 Id. at 9.
The HUD appraiser recognized that the rural rental housing was
superior to the workers' housing in several respects. To
account for the differences, the appraiser made downward
adjustments from the $20 rural rental baseline in three areas:
1) "market limitations," 2) "livability," and 3) "functional
utility." Market limitations involved an adjustment primarily
to reflect the remote location of the migrant housing, far
removed from towns and villages. See Tr. 2971-71, 3028, 3093,
3730.*fn8 For two of the migrant worker camps, the downward
adjustments for market limitations were 20% and 15%; for the
remaining properties the downward adjustment was 10%.
Livability focused on whether the housing satisfied a tenant's
basic needs, with emphasis on sanitary facilities. See Tr.
2958-60. Deductions for livability were as high as 55%. See
HUD Appraisal at 33. Functional utility related to the
attractiveness and usefulness of the property, with emphasis on
the layout, room and closet size, and the type of walls and
floors. See Tr. 2959-60. Deductions for functional utility
were as high as 40%. HUD Appraisal at 24.
Based upon his inspections of the on-site lodging, the HUD
appraiser determined the percentage deduction for each
individual housing unit under each of the three above mentioned
categories. The sum of the three percentages was then
subtracted from the $20 baseline figure to arrive at the weekly
per person fair rental value of each of the units. The HUD
appraiser calculated the fair rental values to range from $0 to
$18, with twenty-six of the thirty-two sites having values of
$10 or less.
Both the ALJ and the Administrator accepted the HUD appraiser's
calculations with a few exceptions. First, both the ALJ and the
Administrator rejected the appraiser's standard 10% deduction
for market limitations. See ALJ's Recommended Decision at
38-39, Exh. G to Plaintiffs' Notice of Motion; Administrator's
Decision at 12. As discussed supra, the HUD appraiser
predicated the 10% market limitation deduction primarily on the
fact that the migrant worker housing was located at a distance
from towns and villages. However, since the comparable units
used by the HUD appraiser in setting the $20 baseline were also
rurally located, and because "the presence [of the housing] at
the farm is a positive factor [for the migrant workers] at
least with respect to transportation cost savings," the ALJ and
the Administrator did not accept the HUD appraiser's standard
10% deductions.*fn9 Id. Second, the Administrator accepted
the ALJ's recommendation that $1 be added to each weekly rental
calculated by the HUD appraiser to reflect excessive
maintenance costs. See Administrator's Decision at 12; ALJ's
Recommended Decision at 41-43.
On March 31, 1982, the ALJ issued his Recommended Decision,
which concluded, inter alia, that: 1) the housing primarily
benefited the workers; 2) no deductions should be allowed for
periods during which the housing was not in compliance with the
New York law; 3) heating fuel is properly chargeable to the
workers; and 4) the fair rental value of the housing sites in
question ranged from $7 to $22 per person, per week. ALJ's
Recommended Decision; Soler, 833 F.2d at 1106.
On February 9, 1983, the Administrator issued his decision,
which he amended on November 15, 1983 in order to clarify
certain issues raised by the parties. See Administrator's
Decision; Amendment to Decision of the Administrator ("Amended
Decision"), Exh. F to Plaintiffs' Notice of Motion. In his
decision, the Administrator adopted most of the ALJ's findings.
However, he rejected the ALJ's findings that heating costs were
properly chargeable to the workers, and that "lodging, if
legally permissible, anywhere in this country is worth no less
than $1.00 per person, per day." Administrator's Decision at
14-15. The Administrator also found, contrary to the ALJ, that
certain of the owners' housing units lacked heating facilities
in violation of the New York State Sanitary Code, and that the
owners should be denied wage deductions for those facilities.
Administrator's Decision at 15; Amended Decision at 4; ALJ's
Recommended Decision at 23-24. Thereafter, the Administrator
adjusted the fair rental values to range from $3 to
$21.*fn10 Administrator's Decision at 16.
The workers argue that the Administrator's determination of the
fair rental value of the housing was arbitrary and was not
supported by substantial evidence. Alternatively, the workers
claim that the Administrator erred by disallowing the
appraiser's 10% downward adjustment for "market limitations."
Lastly, the workers urge the court to replace its prior award
of liquidated damages with an award of prejudgment interest.
The defendant owners contend that the Administrator erred by
refusing to charge the migrant workers for the cost of heating
fuel and in denying wage deductions for those housing
facilities which he found to have been furnished in violation
of state law. In all other respects, the owners argue that the
Administrator's decision should be affirmed. The government
contends that both motions for summary judgment should be
denied, and that the Administrator's decision should be
affirmed in all respects.
Under the APA, an agency's decision may be set aside only if it
is found to be "arbitrary, capricious, an abuse of discretion,
or otherwise not in accordance with the law."
5 U.S.C. § 706(2)(A). Thus, the scope of judicial review is narrow and the
court may not substitute its judgment for that of the agency.
Soler, 833 F.2d at 1107 (citing Citizens to Preserve Overton
Park v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 823, 28
L.Ed.2d 136 (1971)).
A successful challenge to an agency's decision under the
arbitrary and capricious standard of review must ...